What an LSE-Deutsche Börse Merger Means...For Technology

Mergers and acquisitions are a part of life in the capital markets, but when two of the biggest European exchanges begin discussing combining forces, people tend to take notice. So when the Deutsche Börse and London Stock Exchange Group (LSE) both released statements about the possibility of a potential merger, the market buzzed.

LSE and Deutsche Börse shares climbed 17 and 7 percent, respectively, following the news, showing the chances of a move piqued the interest of the investing public.

But the question remains: From a technology perspective, what does this really mean for the industry?

All About the Tech

There is no denying the merger of these two exchanges, which would leave Deutsche Börse shareholders with 54.4 percent of the new firm while LSE shareholders would have 45.6 percent, would create a giant rivaled only by a few other exchanges in the space. That concept isn't necessarily a bad thing, as most would agree the market is already too fragmented. With exchanges looking to raise revenue any way possible, combining forces seems like a sensible move.

In regards to the exchanges' subsidiaries, such as LSE's LCH.Clearnet and Deutsche Börse's Eurex, these businesses would still operate under their current brand names, according to a statement by the LSE.

Now, this is merely speculation, but I'd have to imagine both exchanges would choose to continue to use the platforms their trading venues are currently running on, MilleniumIT for LSE and 7 Market Technology for Deutsche Börse.

It's not just the fact these systems are so heavily embedded into the exchanges, but it's also their ability to generate additional revenue for exchanges. As I wrote about a few years ago, selling trading and clearing platforms, especially to developing markets, is big business for exchanges. It would seem foolish to try and marry these two groups together. Instead, what seems more likely, is allowing them to continue to run independently, with opportunity for growth where one offers something the other does not.

Likelihood

And then there is the matter of all of this even actually occurring. These two exchanges first flirted with the idea of a merger way back in 2000, followed by another potential deal back in 2005.

Merger talks are commonplace in the industry. And while the addition of an actual press release by both parties adds some validity to it, at the end of the day it's still all speculation.

Either way, it won't be long before we know how sincere the two sides are. According to Rule 2.6 (a) of The Takeover Code, Deutsche Börse has to either announce a firm intention to make an offer or decline to make a bid by March 22 at 5 p.m. (GMT).

Food For Thought

• This week is your last chance to get your submissions in for the Sell-Side Technology Awards. Last week I gave a summary on what the best way is to submit an entry is, so be sure to check it out. For more info on the awards, click here.

• Episode five of the Waters Wavelength podcast is live. This week we touched on the Linux vulnerability that was found, in addition to the debate over blockchain versus bitcoin. If you haven't already, be sure to subscribe to the podcast on SoundCloud here, or look us up on iTunes by searching "WatersTechnology" in the iTunes store.

Like the column? Hate the column? Let me know via email (dan.defrancesco@incisivemedia.com) or Twitter (@dandefrancesco).