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Brexit adds to caution on LSE, Deutsche Boerse merger: Draghi
January 11, 2017 / 6:50 PM / 10 months ago

Brexit adds to caution on LSE, Deutsche Boerse merger: Draghi

FRANKFURT (Reuters) - The European Central Bank needs to carefully analyze a proposed merger between London Stock Exchange Group (LSE.L) and Deutsche Boerse (DB1Gn.DE), particularly given Britain’s decision to leave the EU, ECB President Mario Draghi said on Wednesday.

European Central Bank (ECB) President Mario Draghi addresses a news conference at the ECB headquarters in Frankfurt, Germany, December 8, 2016. REUTERS/Ralph Orlowski

“When a merger leads to a change in ownership of a euro area bank, as could be the case for entities within Deutsche Boerse and LSE Group that are licensed as banks, the ECB has to analyze it carefully from a prudential perspective,” Draghi said in a letter to a member of the European Parliament.

“The United Kingdom’s withdrawal (from the EU) may lead to a loss of oversight and supervision of UK central counterparties by the ECB,” Draghi added. “Thus, it will be important to find solutions that at least preserve, or ideally enhance, the current level of supervision and oversight.”

Deutsche Boerse and LSE have been working to overcome regulatory hurdles holding up their $28 billion merger as the European Commission has expressed antitrust concerns, particularly in the case of clearing of derivatives contracts.

Seeking to appease regulators, the LSE agreed earlier this month to sell its French clearing business to Euronext (ENX.PA) for 510 million euros ($535 million), a move that may still not be enough for Brussels.

A major hurdle to the merger is how antitrust regulators define the derivatives market.

Deutsche Boerse is hoping that the European Commission will treat over-the-counter (OTC) derivatives contracts and on-exchange traded derivatives as two separate markets, sticking to a market definition the Commission confirmed back in 2012.

Deutsche Boerse’s Eurex is mainly active in exchange-traded derivatives, while the LSE’s LCH.Clearnet is active in the OTC business.

But Deutsche Boerse has acknowledged that the European Commission may change its mind, prompting some concessions such as the sale of LCH.Clearnet to avoid the combined group being regarded as a dominant player.

Reporting by Balazs Koranyi; Editing by Ruth Pitchford

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