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EC: Deutsche Börse-LSE deal would have meant 'de facto monopoly' in fixed income

The merger of Deutsche Börse AG and London Stock Exchange Group Plc would have given the new holding company a "de facto monopoly" in fixed-income instruments clearing, European Competition Commissioner Margrethe Vestager said March 29 as she announced the blocking of the deal.

Vestager said the EC had two serious concerns over fixed-income clearing and a third over the clearing of single stock equity derivatives. The proposed sale of LSE's French clearing unit, LCH SA, to Euronext NV was not enough to clear the EC concerns, and LSE's rejection of an EC demand that it sell Italian fixed-income trading platform MTS was the final nail in the coffin, Vestager said.

The EC decision means the €510 million sale by LSE and LCH.Clearnet Group Ltd. of LCH SA to Euronext will also be canceled.

Vestager also said the submission of the remedy proposal came "minutes before the deadline," leaving little room for considering alternative options such as behavioral remedies.

The EC said it requested the sale of MTS after determining that LCH SA's fixed-income clearing business was "vitally dependent" on trading feeds from the Italian platform. "Without these trading feeds, the viability of this business line in the future would be severely undermined," it said, making it impossible to determine whether the off-loaded LCH business would be a viable fixed-income clearing competitor.

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

LSE said it disagrees with the EC's view that the LCH business would not have been a viable stand-alone competitor without the sale of MTS, but noted that it had offered a remedy that included guaranteed access to MTS trade feeds for three years and would have meant that MTS would have accounted for less than 10% of LCH's overall gross income.

LSE also noted it would have paid out a special dividend to its shareholders, contingent on completion of the merger, and said it still intends to honor the commitment to return capital by launching an on-market share buyback of £200 million, "an amount broadly equivalent to the return it would have made had the merger … proceeded as planned."

It also said it will continue to pursue selective acquisitions as well as "ongoing organic investment" and will consider further options to repatriate capital to shareholders.

"The prohibition is a setback for Europe, the Capital Markets Union and the bridge between continental Europe and Great Britain," said Deutsche Börse Chairman Joachim Faber. "A rare opportunity to create a global market infrastructure provider based in Europe and to strengthen the global competitiveness of Europe's financial markets has been missed."

Both Deutsche Börse and LSE expressed confidence in their ability to move forward as stand-alone businesses, with Deutsche Börse saying it plans to deliver annual growth of 10% to 15% in consolidated net profit.