The European Commission has opened an in-depth investigation under the EU Merger Regulation into the planned merger between Deutsche Börse AG and NYSE Euronext Inc., two leading stock exchange groups active worldwide. The Commission’s initial market investigation indicated competition concerns in a number of areas, in particular in the field of derivatives trading and clearing. The Commission now has 90 working days, until 13 December 2011, to take a final decision on whether the transaction would reduce effective competition in the European Economic Area (EEA). The decision to open an in-depth inquiry does not prejudge the final result of the investigation.
Joaquín Almunia, Commission Vice President in charge of competition policy, said: “The proposed merger would remove a strong competitor from the market and would give the merged company by far the leading position in derivatives trading in Europe. The Commission needs to make sure that markets which are at the heart of the financial sector remain competitive and efficiently deliver to users."
The Commission’s initial market investigation pointed to significant concerns with respect to derivatives, as the transaction would bring together the two largest derivatives exchanges in Europe. Derivatives are financial contracts whose value is derived from an underlying asset or variable, such as stocks, interest rates or currencies. Derivatives are generally used for hedging, investment purposes, and overall risk management in financial markets. Clearing plays an important role in derivatives trading. The purpose of clearing is to manage the risk of the trading parties in the interim period between trading and settlement.
At this stage, the Commission is mainly concerned that due to the removal of an important competitor, the merger would have a negative impact on innovation in derivatives products and technology solutions. Moreover, the possibilities for fee competition may be reduced due to increased difficulties for competitors to enter the market. Customers who could be affected by this include pension funds, mutual funds and retail banks, as well as professional brokers and investment banks. The investigation revealed concerns that in the absence of access to the merged company's enlarged post-trade clearing facilities (i.e. in the presence of a closed "vertical silo"), entry by rival derivatives platforms would be made more difficult in a market already characterised by high barriers to entry.
During the initial market investigation, concerns were also raised in a number of other areas, in particular in equities trading and settlement and index licensing.
Companies and products
Deutsche Börse is active across the whole life chain of trading, clearing and settlement of financial instruments. It operates a number of stock exchanges worldwide, among which the Frankfurt Stock Exchange and the Eurex derivatives exchange. NYSE Euronext is also active worldwide. It operates a number of stock exchanges in Europe (Amsterdam, Brussels, Lisbon, Paris), the New York stock exchange and the Liffe derivatives exchange, based in London.
The transaction was notified to the Commission on 29 June 2011.
Merger control rules and procedures
The Commission, in 1989, was given the power to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation). The Commission clears the vast majority of mergers after a one-month review, but if it has competition concerns it must open an in-depth investigation (Phase II review). The opening of a full probe does not prejudge its outcome.
There are currently three other Phase II investigations. The first one concerns the proposed acquisition of MWM Holding GmbH by Caterpillar Inc., which are both active in the commercialization of reciprocating engine generator sets used for power generation (see IP/11/543; deadline is 26 October 2011). The others are two transactions in the hard disk drive sector: the proposed acquisition of the Korean Samsung's HDD business by Seagate of the US and the proposed acquisition of the storage business of Japan's Hitachi by Western Digital Corporation of the US (see IP/11/660, deadlines here are also 26 October 2011).
A non-confidential version of today's decision will be available at:
http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=2_M_6166
