More than 10 months after the announcement of the proposed $9
billion merger between
NYSEEuronext Inc.
(
NYX">NYX
) and Frankfurt-based DeutscheBoerse , the deal finally managed to
get the anti-trust clearance from the US Justice Department last
week.
However, with a view to limit the market share of the merged
entity, the US Justice Department demanded the sale of the 31.5%
ownership stake of DeutscheBoerse's wholly-owned subsidiary,
International Securities Exchange, in Direct Edge Holdings within
two years from the date of the merger.
Additionally, the US Justice Department required the German
exchange to give up all governance rights in Direct Edge and submit
the details of the same in writing. However, the merged
NYSE-DeutscheBoerse entity will have to continue providing some
services to Direct Edge, which is the fourth largest exchange
operator in the United States.
The agreement was initially announced in February 2011, when
eroding market shares had thereby led to a series of attempts by
various exchanges to make cross-border deals in the hope of
diversification and cost reduction.
The anti-trust authorities are apprehensive as the deal will put
about 90% of the exchange-traded derivatives' market and 30% of the
stock trading transactions in Europe under the umbrella of the
merged company. Moreover, if the merged entity continues to
control the stake i n Direct Edge, then it will be in a position to
manipulate the activities of the company, which is a direct
competitor.
The high combined market share is also the primary concern for
European Union's anti-trust authorities and obtaining approval from
them is the chief hurdle for the merger deal at present. The
approval will be based on the votes of the commissioners of each of
the 27 European Union countries and N YSE and DeutscheBoerse are
likely to lobby each of them to obtain their votes.
The two exchanges have been constantly trying to appease the
anti-trust authorities by offering vario us concessions. Last week,
the merging entities submitted a proposal to the European Union
Commission (EUC ), offering to maintain the published clearing and
trading fees on the combined entity's European derivatives
transactions at the current level over a three-year period, in the
event of clearance of the merger.
Before that, NYSE and DeutscheBoerse had offered to divest the
single-stock equity derivatives business of NYSE'sLiffe in
Brussels, Paris, Lisbon, Amsterdam and London. Additionally, the
exchanges agreed to provide access toDeutscheBoerse's Eurex
Clearing to outsiders, including rivals, for some products.
Alongside, the parties-to-merger also agreed upon licensingEurex
trading to third parties, who are interested in initiating interest
rate swaps on this platform.
However, theEUC is worried regarding the huge market share and
the amalgamation of trading and clearing functions in the merged
company, which m ight put rivals at a competitive disadvantage and
also push out new entrants.
However, NYSE and DeutscheBoerse are trying to convince the
authorities that a majority of their derivatives are traded as
over-the-counter products and not through any exchange, thereby
leaving substantial scope for competitors. A final decision from
theEUC is expected by February 9, 2012.
Previously, in April, NYSE had faced a counter-bid from arch
rivals
NASDAQOMX Group Inc.
(
NDAQ">NDAQ
) and its commodities partner
IntercontinentalExchange Inc
. (
ICE
) but the U.S. Department of Justice had rejected it over
anti-trust concerns. Another rival, London Stock Exchange GroupPlc
. had attempted a tie-up with Canada'sTMX Group Inc. but
nationalistic concerns had forced them to abandon the deal.
The other deals were either unable to gather enough investor
support or faced regulatory and political hurdles and collapsed.
The NYSE - DeutscheBoerse deal has been one of the few to have
reached this, along with the proposed merger between BATS Global
Markets Inc. and Chi-X Europe.
Currently, NYSE carries aZacks #3 Rank, which translates into a
short-term Hold ratin g.
INTERCONTINENTL (
ICE
): Free Stock Analysis Report
NASDAQ OMX GRP (
NDAQ
): Free Stock Analysis Report
NYSE EURONEXT (
NYX
): Free Stock Analysis Report
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