EU Opens In-Depth Review of Deutsche Börse, London Stock Exchange Merger -- Updatge

By Natalia Drozdiak 

BRUSSELS--The European Union's antitrust regulator opened an investigation on Wednesday into the proposed merger of Deutsche Börse AG and London Stock Exchange Group PLC, citing concerns that the deal could reduce competition in a number of financial markets.

The European Commission said the merger could affect clearing functions, derivatives, repurchasing agreements, German stocks and exchange-traded products and that it would create the largest European-exchange operator "by far."

"Financial markets provide an essential function for the European economy. We must ensure that market participants continue to have access to financial-market infrastructure on competitive terms," EU antitrust chief Margrethe Vestager said.

The LSE said it would try to head off some competition concerns by exploring the sale of its clearing unit, LCH SA. It said any sale of the unit would be subject to the merger with Deutsche Börse going ahead.

The commission said it was concerned the combination of both companies' clearing houses could hurt competing trading platforms that depend on LSE's clearing house. It would create the largest collateral pool in the world, at around EUR150 billion ($168 billion), used to guard against risk when clearing transactions, the EU noted.

In merger reviews, the commission tends to prefer structural remedies, like selling assets, to ease concerns. But a French official has previously said the sale of the LSE's French clearinghouse would still fall far from what is necessary to ease France's concerns about the deal.

The EU's in-depth probe comes on the heels of warnings raised by various European ministers. French Finance Minister Michel Sapin has said the deal would curtail competition and create extra risk, while Belgian Finance Minister Johan Van Overtveldt wrote Ms. Vestager a letter warning about the impact the deal would have on the financial stability of both the European and Belgian economies. The Paris Bourse and the Brussels Stock Exchange are both part of the stock exchange NYSE Euronext that rivals Deutsche Börse and LSE.

In its statement Wednesday, the commission said it was also looking at the merger's effect on clearing for repurchasing agreements as well as derivatives, where in many cases the parties are direct competitors. In addition, the EU said it would scrutinize the deal's effect on German stocks since the merger would combine two of the three largest trading platforms for German-listed equities.

In-depth merger reviews by the EU are common in large, complex deals. The commission can seek concessions from the parties, or if they fail to assuage the EU's concerns it could block the deal.

The European Commission blocked a deal between Deutsche Börse and NYSE Euronext in 2012 on fears it would create a quasimonopoly in European derivatives traded on exchanges.

A Deutsche Börse spokesman said the in-depth probe was "expected," adding that the parties "continue the constructive dialogue and cooperation with the EU competition authority."

The commission has until Feb. 13, 2017, to reach a decision, though the deadline could still be extended. Deutsche Börse and LSE will subsequently also have to get clearance from the local German government of Hesse.

The deal is expected to close some time in the second quarter of next year.

Ulrike Dauer in Frankfurt contributed to this article.

Write to Natalia Drozdiak at [e-mail]

(END) Dow Jones Newswires

September 28, 2016 12:24 ET (16:24 GMT)

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