LSE/Deutsche Boerse merger blocked by European Commission

European Commission blocks merger due to potential fixed income clearing monopoly.

The European Commission has officially blocked the proposed merger between the London Stock Exchange (LSE) and Deutsche Boerse, citing a de facto monopoly in fixed income clearing as the reason for its decision.

Commissioner Margrethe Vestager, in charge of competition policy, explained the merger would have “significantly reduced competition by creating a de facto monopoly in the crucial area of clearing of fixed income instruments”.

She added: “As the parties failed to offer the remedies required to address our competition concerns, the Commission has decided to prohibit the merger.”

The Commission said the potential monopoly in fixed income clearing would have had a knock-on effect on the downstream markets for settlement, custody and collateral management.

It also could have removed horizontal competition for the trading and clearing of single stock equity derivatives, the Commission said.

The LSE and Deutsche Boerse offered to sell its LCH.Clearnet SA business to remedy competition concerns, but authorities concluded this was not enough to avoid a monopoly.

The Commission’s market test revealed LCH.Clearnet SA's fixed income clearing business is ‘vitally dependent’ on trading feeds from LSE's fixed income trading platform, MTS.

“Without these trading feeds, the viability of this business line in the future would be severely undermined. Therefore, the Commission could not determine whether LCH.Clearnet SA would have been a viable competitor in fixed income clearing going forward,” the Commission explained.

LSE refused to sell its MTS business in February and viewed the proposed sale as ‘disproportionate’ and too complex to required regulatory approval.

Carsten Kengeter, CEO at Deutsche Boerse, commented shortly after the decision: “Deutsche Boerse is well-positioned on a stand-alone basis to compete at a global level with other market infrastructure players.”

LSE’s share prices surged 3.5% this morning following the announcement of the blocked merger.