Despite having its $9.5 billion deal with NYSE Euronext rejected by European Union regulators earlier this year, Deutsche Börse has continued to press the authorities to reconsider their definition of how large the market really is.
The operator of the Frankfurt Stock Exchange and Eurex has asked the European Union’s General Court in Luxembourg to overturn a decision earlier this year by antitrust regulators to block its proposed merger with U.S. rival NYSE Euronext. And while that deal has long gone by the wayside, the move by Deutsche Börse is seen as more as a way to set the rules in place for any potential future merger activity.
“This is mostly about paving the way for future M&A,” Richard Perrott, an analyst with Berenberg Bank, told Markets Media. “This is not about trying to resurrect the deal. Given an appeal process can be very time consuming and the outcome uncertain, both exchanges have moved on to standalone strategies.”
When the EU’s Competition Commission rejected the transatlantic merger between NYSE and Deutsche Börse in February, it did so on the grounds that it would have been anti-competitive, leading to a near-monopoly on exchange-traded derivatives. However, the argument from the merger partners all along was that the derivatives market is much larger than what is just traded on exchanges. They stressed that although they would have had a firm control of exchange-traded derivatives, such trading accounts for just 15% of derivatives in Europe with the remaining 85% done on over-the-counter markets.
“The Commission inaccurately accepted only some of the efficiencies as verifiable, merger-specific and likely to benefit customers and incorrectly claimed that they were insufficient to counteract the competitive effects of the merger,” Deutsche Börse said in a court filing. The exchange added that the blocking of the merger was a “black day” for Europe.
“Deutsche Börse wants the regulators to judge the listed derivatives space as not just a European market, but a global market and additionally factor in the large over-the-counter industry” said Perrott. “The outcome has the potential to shape future deals.”
NYSE Euronext, meanwhile, is not appealing the decision by European antitrust regulators to block the merger with Deutsche Börse.
As Deutsche Börse pleads its case in the courts, one of the few high-profile deals still on the table is the acquisition of the London Metal Exchange by Hong Kong Exchanges and Clearing, which operates Hong Kong’s stock exchange. However, unlike the $32 billion in similar cross-border deals that have gotten nixed for one reason or another, many observers don’t expect much resistance in this newest deal.
“The LME and HKEx have no overlap, so there is no reason for the competition authorities to step in,” said Perrott. “There would be no reduction in competition or for potential competition. Nor is there the same level of political debate. The LME is a global exchange but it operates in a niche market, and it’s not a household name like NYSE. It’s not a controversial issue and is not as likely to face any competition concerns.”
HKEx was announced as the winning bidder for the LME last week, in a deal valued at $2.15 billion. The 135-year-old LME is the world’s largest metal’s bourse and handles more than 80% of global trade in industrial metal futures. HKEx beat out rivals IntercontinentalExchange, CME Group and NYSE Euronext. The move is seen as a big step for HKEx, which is trying to tap into China’s burgeoning market for copper, aluminum and nickel.