EU blocks Deutsche Börse-London merger

The European Commission said it has prohibited the proposed merger of Deutsche Börse AG and London Stock Exchange Group after concluding the merger would have created “a de facto monopoly in the markets for clearing fixed income instruments.”

Deutsche Börse AG (DBAG) and London Stock Exchange Group (LSEG) own the main stock exchanges of Germany, Italy and the United Kingdom, as well as several of the largest European clearing houses.

Commissioner Margrethe Vestager said: “The merger between Deutsche Börse and the London Stock Exchange would have significantly reduced competition by creating a de facto monopoly in the crucial area of clearing of fixed income instruments.

“As the parties failed to offer the remedies required to address our competition concerns, the Commission has decided to prohibit the merger.”

The Commission said the merger would have led to a monopoly in clearing of bonds and repurchase agreements in Europe, where the parties “are the only relevant providers of these services.”

In particular, it said the merger would have combined DBAG’s Frankfurt based clearing house Eurex with LSEG’s clearing houses LCH.Clearnet  — comprising London based LCH.Clearnet Ltd and Paris based LCH.Clearnet SA — and Rome based Cassa di Compensazione e Garanzia.

“This monopoly in clearing fixed income instruments would also have had a knock-on effect on the downstream markets for settlement, custody and collateral management,” said the Commission.

“Service providers in these markets depend on transaction feeds from clearing houses.

“As DBAG’s Clearstream competes with these service providers, the merged entity would have had the ability and the incentive to divert transaction feeds to Clearstream and foreclose the other competitors.

“In addition, the merger would have removed horizontal competition for the trading and clearing of single stock equity derivatives (based on stocks of Belgian, Dutch and French companies).

“Currently, Eurex competes with a bundled product (combining trading and clearing) offered by Euronext and LCH.Clearnet SA.

“After the merger, LCH.Clearnet, which has significant pricing power over the bundled product, would have less incentive to compete with Eurex.

“”Finally, this market power could potentially also be used to squeeze out Euronext.”