EU regulator launches in-depth investigation into Deutsche Boerse LSE merger

European Union antitrust regulator yesterday said that the proposed $28-billion merger between Deutsche Boerse (DB) and the London Stock Exchange (LSE) could hinder competition in key financial market activities.

The European Commission (EC) said it has launched an in-depth investigation to find out whether the proposed merger would reduce competition in several financial market infrastructure areas.

The proposed merger would create the largest European exchange operator by combining the activities of the exchanges of Germany, the UK and Italy.

EC commissioner Margrethe Vestager, in charge of competition policy, said,''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. Therefore, we have opened an in-depth investigation to assess the proposed merger.''

In March, DB and LSE announced that they would merge in an all-stock deal in order to create a leading Europe-based global markets infrastructure group. (See: LSE and Deutsche Börse to merge in all-stock deal) The EC said that it had concerns about reduced competition in clearing where the merged company would create the largest margin pool in the world, worth €150 billion ($168 billion), and in derivatives.

Its preliminary concerns were that the merger could eliminate competition in a number of areas, including bonds, derivatives and repurchasing agreements, adversely affect competing trading venues that depend on clearing services provided by LSE's clearing house LCH.Clearnet, and adversely affect competitors in post-trade markets, such as collateral management, settlement and custody services.

DB is a diversified financial market infrastructure organisation, best known for operating the Frankfurt Stock Exchange, a regulated marketplace for trading stocks, bonds and various other financial instruments.

It also operates other regulated exchanges, most notably the Eurex and EEX exchanges, trading various types of derivative products. Apart from trading, its activities include the supply of post-trade infrastructure services such as clearing, settlement and custody services, as well as market data, indices and other information products.

The LSE is one of Europe's pre-eminent financial infrastructure companies, best known for operating the London Stock Exchange. It also owns Borsa Italiana, the Italian stock exchange, and operates a number of other trading platforms for trading of stocks, other equity-like exchange traded products, bonds and derivatives.

LSE is also active in the post-trading space, most notably in clearing through the London Clearing House including SwapClear, and Cassa di Compensazione e Garanzia, the Italian clearinghouse.