London Stock Exchange-Deutsche Börse Merger Killed Off by European Commission

European Commission prohibits deal on basis it would create a monopoly for fixed-income clearing in Europe.

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London Stock Exchange's refusal to divest its stake in fixed-income platform MTS was a major factor in the failure of the merger with Deutsche Börse.

The European Commission has blocked any possibility of a London Stock Exchange (LSEG) and Deutsche Börse merger, prohibiting the £22 billion ($27 billion) deal under EU Merger Regulation amid fears that it would create a “de facto monopoly in the markets for clearing fixed-income instruments.”

The European Commission’s decision on the proposed deal follows LSEG’s February refusal to divest its majority stake in Italian government bond trading platform MTS, a regulated electronic trading platform for European wholesale government bonds and other fixed-income securities.

Asserting that allowing the merger to go through would create “a de facto monopoly” in fixed-income clearing, through the combination of Deutsche Börse’s Eurex business, LSEG’s LCH.Clearnet operations in London and Paris, and the Rome-based Cassa di Compensazione e Garanzia, the European Commission also said the deal would have a “knock-on effect on the downstream markets for settlement, custody and collateral management” and could potentially squeeze Euronext out of the market.

“The European economy depends on well-functioning financial markets. That is not just important for banks and other financial institutions. The whole economy benefits when businesses can raise money on competitive financial markets,” said Commissioner Margrethe Vestager. “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.”

Following the announcement, Vestager denied that the result of the UK referendum to leave the European Union had any bearing on the European Commission’s verdict to veto the merger.

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