LSE-Deutsche Boerse merger may end exchanges’ mega-deals

London-Stock-ExchangeIf the merger between London Stock Exchange (LSE) and Deutsche Boerse goes ahead, it could be the final mega-deal in the industry as further combinations of such scale are likely to hit antitrust buffers.

The two companies will seek to overcome the kind of regulatory concerns that scuppered Deutsche Boerse’s attempt to merge with NYSE Euronext four years ago, a deal blocked because it would have created a near-monopoly on exchange-traded derivatives in Europe.

They could argue there is less overlap between certain business lines in any one region, namely Europe, say industry experts; for example while Deutsche Boerse has a big European derivatives trading operation, LSE is largely absent from that business.

If the deal is cleared it would create a “Big Four” of trading powerhouses that outstrip rivals in terms of market value and global reach – ICE and CME in the United States, LSE-DB in Europe and Asia’s Hong Kong Exchanges and Clearing

Each would have such large global operations in shares and derivatives trading, as well as indices and clearing, that any argument that business lines do not overlap could not prevail again, say industry officials and analysts.

“The very big players are already starting to be in danger of running into antitrust anywhere they go,” said Patrick Young, a consultant to exchanges since the days of the first LSE-Deutsche Boerse tie up proposal back in 2000.

“We are coming to the point where the great exchanges merger game is coming to an end, the great powers have been defined.”

Regulators would be unlikely to allow the CME and ICE to merge, for instance, given a combined group would have a near-unassailable position in U.S. securities trading.

It is also unlikely that ICE would be allowed to buy a combined LSE-Deutsche Boerse group as this would create an effective monopoly of listed derivatives trading in Europe, say analysts.

It would also be hard to envisage the Chinese government allowing a foreign exchange take over Hong Kong Exchanges & Clearing, they said.

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