27 February 2017
London
Reporter: Stephanie Palmer

LSEG-Deutsche Börse merger hits new roadblock


The proposed merger of the London Stock Exchange Group (LSEG) and Deutsche Börse has hit yet another stumbling block, as the board of LSEG declined to comply with fresh demands from the European Commission.

On 16 February the commission raised new concerns around the all-share merger of equals, regarding the bond and repo trading fees currently being provided by MTS, LSEG’s Italian electronic trading platform for European wholesale government bonds and other fixed-income securities.

The commission requested LSEG to sell the platform before the merger with Deutsche Börse can go ahead, demanding a formal proposal for divestment of LSEG’s majority stake by midday today (27 February).

The board of LSEG decided it would not agree to this, calling the request “disproportionate” and stating it is acting in the best interest of its shareholders by declining.

This follows the European Commission’s request, in September, for LSEG to divest its majority stake in LCH.Clearnet SA, the French arm of LCH.Clearnet Group, in order to address anti-trust concerns.

In January, Euronext placed an irrevocable all-cash offer for LCH SA, agreeing a put option and cash consideration of €510 million on the condition that the merger between LSEG and Deutsche Börse was completed. The sale was also subject to review and approval from the European Commission.

The new request arose from the commission’s market testing of LSEG and Deutsche Börse’s submitted commitment to the sale of LCH SA.

However, LSEG made the case that MTS is a systematically important regulated business in Italy, due to its role in the trading of Italian government bonds and other securities, arguing that it accounts for a “significant proportion” of LSEG’s revenue.

In a statement, LSEG said: “Any change of control of MTS would require, in particular, the approval of the Italian authorities and would trigger parallel regulatory approval processes in other jurisdictions including the UK, Belgium, France and the USA.”

It went on: “The LSEG board believes that it is highly unlikely that a sale of MTS could be satisfactorily achieved, even if LSEG were to give the commitment.”

“Moreover, the LSEG board believes the offer of such a remedy would jeopardise LSEG’s critically important relationships with these regulators and be detrimental to LSEG’s ongoing businesses in Italy and the combined group, were the merger to complete.”

LSEG conceded that, based on its current position, the commission is unlikely to give the go-ahead for the merger. However, it said the group “remains convinced of the strategic benefits of the merger” and will continue to work towards completion of it.

As well as requiring clearance from the European Commission, the proposed merger is subject to approval from all relevant regulators and authorities in all countries LSEG operates in. Discussions are underway with the majority of these, but have not yet been concluded.

More regulation news
The latest news from Securities Lending Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
No further SFT regulations on the horizon, says European Commission
20 October 2017 | Paris | Reporter: Jenna Lomax
article synopsis 300 characters only so it fits to three lines. always add three periods to finish synopsis...
LEI compliance is non-negotiable, says ESMA
20 October 2017 | Paris | Reporter: Jenna Lomax
Steven Maijoor, chair of ESMA stated that there is no room for negotiation where legal entity identifiers are concerned
US appeals court dismisses US equity lending mismanagement case
20 October 2017 | Missouri | Reporter: Drew Nicol
Allegations of mismanagement of a securities lending programme brought by two US Bank pension beneficiaries was dismissed by the US Court of Appeals for the Eighth Circuit this week
Margin rules depress derivative contract terms, survey finds
19 October 2017 | Brussels | Reporter: Jenna Lomax
Only few changes were reported regarding credit terms and conditions with respect to non-centrally cleared OTC derivatives
Trax gains MiFID II ARM licence from UK FCA
29 September 2017 | London | Reporter: Drew Nicol
Reporting solution provider Trax is among the first to be approved by the UK FCA as an approved reporting mechanism (ARM) for transaction reporting services under MiFID II
Shadow banking will not be banned, confirms IMF
26 September 2017 | Helsinki | Reporter: Jenna Lomax
The IMF, along with the FSB and other regulatory bodies, have no desire to shut down the alternative financing industry but that some aspects of the market’s risk features must be managed
AcadiaSoft expands user base for IM compliance
21 September 2017 | Massachusetts | Reporter: Drew Nicol
The second phase of the IM rules went live on 1 September under the regulatory framework of BCBS and IOSCO