European Union: Commission Blocks Deutsche Bӧrse And NYSE Euronext Merger

Last Updated: 14 March 2012
Article by Elisabetta Rotondo

On 1 February 2012 the European Commission (the "Commission") announced its decision to prohibit the merger between Deutsche Bӧrse and NYSE Euronext. The Commission concluded that the merger would bring together the two largest financial derivatives exchanges in the world, Liffe and Eurex. The Commission determined that the merger would result in the establishment of a quasi-monopoly in relation to European financial derivatives traded globally on exchanges (European interest rates, single stock equity and equity index derivatives).

Market Definition

The Commission determined that the relevant market for derivatives depended upon the level of standardisation of the product. Therefore derivatives traded through a dealer network called over-the-counter derivatives ("OTC" derivatives) and exchange-traded derivatives ("ETDs") formed separate markets.

Furthermore, contrary to the parties' arguments that this was a global market, the Commission identified that the relevant geographic market depended upon the underlying asset upon which the derivative was based, therefore the relevant market was that of European ETDs.

Competitive Assessment

The Commission found that Liffe and Eurex were each other's closest competitors in the market for ETDs based on European interest rates or equities as this formed the focus of both parties' business. Both are also of a similar size, possessing a large membership base and a large portfolio of contracts which they offer to trading and clearing. The Commission also found that Eurex and Liffe exert strong competitive pressure on each other in relation to those contracts where they compete as well as those contracts where the liquidity has settled on one of their platforms. The mere threat of customers switching from one of these exchanges to the other has in the past prompted fee cuts and innovation. This would be lost post-merger.

According to the Commission, no other competitor can match the parties' offering or margin pool. Other companies which provide similar services worldwide exert a weak constraint on the parties. Chicago Mercantile Exchange ("CME") for example, has a limited presence in derivatives based on European underlyings and only competes marginally in certain asset classes. In particular the CME could not provide comparable collateral savings to those offered by the parties. The Commission therefore considered it unlikely that CME would be a credible competitive force to constrain the merged entity. Post-merger, users of these contracts would therefore have no choice but to use the merged entity. As a result of the loss of competition between the two exchanges, the merged entity would be able to raise prices and reduce innovation in derivatives products and technology solutions.

Vertical Foreclosure

In addition the Commission found that the merged entity would be able to raise barriers to entry which were already high by refusing rival derivatives platforms access to its post-trade clearing facilities. This was because Eurex and Liffe both operate closed vertical silos linking their exchange to their own clearing house. The merger would have resulted in a single vertical silo which would have traded and cleared over 90% of the global market for European ETDs. Post-merger, entry by a competitor would have been more difficult as customers would prefer the advantages offered by the merged entity of clearing similar contracts in a single clearing house. This would reduce the possibilities for fee competition and have a negative impact on customers such as mutual and pension funds, professional brokers and investment banks as well as retail banks.

The Commission was also concerned about the effect of the transaction on equities trading and settlement and index licensing.

Pro-competitive benefits of the merger

The Commission rejected the parties' arguments that the merger would benefit customers by offering greater liquidity and by reducing the collateral they have to post as security, considering that there was no evidence that liquidity would be likely to increase as a result of the merger and in fact evidence suggested that competition rather than consolidation generated liquidity gains. It acknowledged that the merger may lead to some collateral savings as a result of increased cross-margining opportunities, but these savings were not significant enough to outweigh the harm to consumers and could partly be achieved without the merger. This is because the relevant measure for actual cost savings is not the collateral savings but the benefits that can be gained by using this money for the best alternative purpose.

Remedies offered

Remedies offered by the parties were rejected as insufficient to allay the Commission's concerns, difficult to implement and unlikely to be effective.

  • The Commission considered that a divestment of Liffe's European single stock derivatives business was too small and not diversified enough to be a viable stand-alone business. There was also a likelihood that customers would trade out of their positions rather than transferring to a new acquirer, thereby eroding the transferable open interest.
  • The parties offered access to the merged entity's clearing house for materially new interest rate, bond and equity index derivatives contracts. However the Commission's market test revealed that no contracts would satisfy the criteria for access.
  • The parties also offered to licence Eurex's interest rate derivatives software. The Commission considered this remedy of little use as most competitors already had their own software.
  • (The parties also pledged not to increase prices for three years, although this was not offered as a formal commitment. The Commission rejected this pledge as ineffective as it was based on list prices while actual prices are based on rebates. In any case, this commitment would be difficult to implement and monitor).

The Commission did not identify significant competition issues in other areas but noted that if the parties had offered suitable commitments in derivatives markets, the merger would have been cleared and the suggested benefits in cash markets safeguarded.


The merger was blocked due to a fundamental difference of opinion on a number of points, focussing mainly on market definition.

Firstly, despite arguments that the OTC derivatives and ETD derivatives were in the same market the Commission found that they formed separate markets because of: i) their specification - ETDs are in a standardised format to enable electronic trading, while OTC trades are often customised and negotiated to meet buyer and seller requirements; and ii) their size (ETD contract values are typically much smaller amounts, around €100,000 per trade, as opposed to OTC trade values which are typically around €200,000,000). In addition, trading a contract OTC is significantly more expensive (up to eight times more) than trading a contract on an exchange.1 Consequently, even if the price of trading derivatives contracts on exchanges were to increase by up to 5-10%, investors would still not be likely to have an incentive to switch to trading OTC. Lastly, there are a growing number of investors which for risk management reasons can only trade on exchanges and therefore cannot switch to OTC.

Had the Commission accepted the parties' point that OTC derivatives and ETDs formed part of the same market the parties' combined market share would have been under 20% rather than the 90% which the Commission identified on a narrower definition.2 This is because the vast majority of derivatives are traded directly between banks and other investors (OTC), or over the counter rather than on exchanges.

The parties considered the geographic market for ETDs to be global as both Eurex and Liffe face competition from other derivatives exchanges world-wide, notably Chicago's CME Group ("CME") and the Singapore Stock Exchange ("SSE"). The decision by the Competition Commission in its in-depth investigation of the LSE/Deutsche Bӧrse and LSE/Euronext merger supports the view that the market is global.3 The European Commission in this case noted however that neither CME nor SSE achieve sufficient volumes of trades to compete with the parties (CME achieved a volume of 2,000 contracts compared with 250million traded by Liffe). Therefore the Commission's conclusions on the effects of the merger would have been the same however the geographic market had been defined. This is because it was the loss of competition between each of the parties which were each other's closest competitors which was at issue in this case.

The European Commission found that as Eurex and Liffe are each other's closest competitors, they help drive innovation. It rejected the parties' claims that the merger would not in fact result in a loss of competition between them as Eurex and Liffe provide different types of ETDs - Eurex is the largest provider of German two, five and ten year interest rate derivatives whereas Liffe generally offers shorter term derivatives. While acknowledging that actual competition between the parties in relation to certain ETDs may be limited, the European Commission insisted that the competitive threat of entry by each of the exchanges into the other's core ETD markets had constrained the parties from raising trading charges. For example "Eurex has been trying to compete with Liffe's Euribor contract while Liffe has been trying to rival Eurex's long-term derivatives business".4 To remove this threat could result in higher charges to the detriment of consumers. Furthermore, the boundaries between short-term interest rate derivatives based on European interbank lending rates and European long term interest rate derivatives based on European government debt securities, are becoming blurred, suggesting the parties' may compete head on in relation to these products in the future. The Commission also determined that the parties do compete head-to-head in relation to European interest rate derivatives and equity derivatives. They are of comparable size and no other exchange can match the Parties' offering and margin pool in relation to these particular contracts. Therefore "Eurex and Liffe exert a significant competitive constraint on each other both as concerns the contracts where they currently compete and the contracts where liquidity has settled on one of their platforms".5

This merger also raised tensions and divided opinion within the Commission. Supporters of the merger like Michel Barnier, the French Financial Services Commissioner, believed that the merger was pro-competitive and indeed necessary in order to create a strong European exchange capable of competing vigorously on the global market. Those against the merger, like Joaquín Almunia, Vice President of the European Commission, considered that the creation of a European Champion would not provide sufficient benefit to outweigh the harm to customers and consumers that the merger would cause through the loss of competition between the parties.6

Press releases from both parties suggest that they will not appeal the Commission's decision and will terminate the merger. While this battle may be over, what is clear is that this is not the last we will hear of the European Commission in relation to European derivatives markets - Almunia has revealed that from the information it has gathered during this merger, the Commission will be increasing its competition scrutiny in this area: "given the number and the value of transactions in interest-rate derivatives, and the crucial role these products play in the management of risk, any confirmed manipulation of these interest rates would probably imply a very significant cost to the European economy."7 On 28 February 2012, Almunia revealed that the European Commission is investigating "....certain banks active in financial derivative products linked to the EURIBOR and LIBOR for several currencies [.]"8 which it suspects may have been operating a cartel, contrary to Article 101 of the Treaty on the Functioning of the European Union. All players in this market should take heed of Almunia's warning and make sure their house is in order.

A memo by the European Commission on the merger can be found here

The Commission's decision has not yet been published but will be found at the following link: click here







6.SPEECH/12/131/Joaquín Almunia Vice President of the European Commission responsible for Competition Policy, Competition policy and growth, European Parliament: Internal Market and Consumer protection Committee Brussels, 28 February 2012.



The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions