EU Almunia:Proposed Deutsche Borse, NYSE Merger Requires Sophisticated Scrutiny

The transformation of financial markets by new technologies requires more sophisticated analysis to preserve competition, European Union Competition Commissioner Joaquin Almunia said Thursday.

The proposed merger between Deutsche Borse (DB1.XE) and NYSE Euronext (NYX) is testimony to this, as it would give the merged company the leading position in derivatives trading in Europe, said Almunia in prepared remarks to the Fordham Competition Conference in New York.

"We are looking at this transaction under several angles, including the potential loss of head-to-head competition between the parties, the risk of lower innovation in products and technology, and the impact of the transaction in related markets such as clearing," he said.

Changes in the financial sector will also keep the EU focused on how mergers affect the competitive environment of market data, indexes, trading technology, access to collateral, as well as clearing and settlement.

As examples, Almunia noted the recent antitrust investigations of Markit, the leading provider of financial information in the credit default swap market, and ICE Clear Europe, a clearing house.

"These cases show that, since the spectacular growth in size and complexity of financial services, oversight of the financial sector must extend beyond traders and commercial or investment banks to include infrastructure owners, intermediaries, and information services providers," he said.

Almunia also said it is necessary to look closely into the potential mergers of hard disk drive companies and other information and communication technology, because of the high growth potential of these markets. For instance, the planned acquisition of Samsung Electronics Co.'s (005930.SE) hard-disk operations by Seagate Technology Inc. (STX) and Western Digital Corp.'s (WDC) bid to buy Hitachi Ltd.'s (HTD) disk drive unit are now both in phase two of EU investigations.

"Our initial investigations told us that both deals could raise concerns," he said. "If both mergers were approved, there would be only three or perhaps two players per product market."

He said international competition authorities need to work more closely together, given the global nature of business today, adding that cooperation will likely intensify with agencies in emerging economies too.

"I would like to remind the lawyers in this hall and their colleagues elsewhere that playing one authority against the other does not pay. At the end of the day, it will only complicate the review for everyone," said Almunia.

However, he said populist arguments for screening foreign investment into the EU, including mergers and acquisitions, is "a really weak basis for policy-making."

-By Riva Froymovich, Dow Jones Newswires; [phone]; [e-mail]