In the last couple of days, the European Commission has sent its list of objections to the NYSE and Deutsche Boerse around their anticipated merger. So how does the merger process advance from here?
To me, this is where the true “fun” begins. Fun in the sense that we get to see how the European Commission views this deal right now, and even more importantly, we’ll get to see what kind of concessions NYSE and DB will ultimately make in order to get the final merger approved.
For starters, the European Commission’s objections will reveal a lot about their definition of how far a global exchange should reach, as well as what their perceptions are on fair exchange competition. Kevin McPartland of TABB Group recently raised some good points in this area. Simply put, Kevin suggested European regulators appear to be looking at the NYSE-DB merger more from a regional perspective, whereas U.S. regulators have focused more of their assessments on how this new entity will operate and compete on a global scale. I’m not saying that either the European regulator or U.S. regulator approach is better per se, but the contrast between the 2 regulatory viewpoints is certainly intriguing. Also, I can never underestimate political influences on European and U.S. regulators in these types of high-stakes mergers – because I’m sure it plays a role in both objections and possible concessions.
Assuming the European Commission’s objections aren’t totally off the charts, what types of concessions will NYSE and DB eventually make? Well, my gut instinct says a few different things. Since Derivatives Trading is THE growth business right now and a valuable piece of this merger, I don’t see the combined NYSE-DB entity being willing to sell NYSE Liffe or being willing to sell off trading rights of significant derivatives contracts – they’re just too valuable. More likely, I believe the NYSE and DB will “soften” on the clearing side of the business and allow other products to be cleared within their structures. A lot of market participants in the exchange space seem sensitive to the whole concept of vertical silos, so I think NYSE and DB will be more aggressive in this area of clearing concessions.
To wrap up, I’d imagine that NYSE and DB will entertain any reasonable concessions in order to gain final merger approval – as long as the biggest (most valuable) pieces in the deal stay intact. If they have to sacrifice a few things here and there in order to promote competition, both exchanges will be fine with it. I do find it interesting in the last several weeks that we’ve heard criticism of this merger from entities like Nasdaq and Turquoise, but comparatively little noise from CME or ICE. Perhaps CME and ICE are waiting for an upcoming strategic moment to voice their concerns. In any case, expect this merger story to play out in dramatic pieces through year-end.
By Russ Chrusciel, Product Manager, SunGard Global Trading
Published at forbes.com on 10/10/2011 @ 10:44AM