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London Stock Exchange-Deutsche Boerse deal blocked by EU

London Stock ExchangeImage copyright Reuters

EU regulators have blocked London Stock Exchange’s £21bn merger with German stock exchange Deutsche Boerse.

The European Commission said the deal would have created a “de facto monopoly” for certain financial services.

The merger would have combined Europe’s two largest stock exchange operators.

London Stock Exchange Group said it “regrets” the commission’s decision, as the deal would have created a “world-leading” financial markets firm.

It warned last month that the deal was unlikely to receive EU approval over concerns that it would limit competition.

‘Coup de grace’

LSE and its German rival announced plans for a “merger of equals” about a year ago, aiming to create a giant trading powerhouse that would better compete against US rivals.

LSE Group said on Wednesday: “This was an opportunity to create a world leading market infrastructure group anchored in Europe, which would have supported Europe’s 23 million SMEs and the development of a deeper Capital Markets Union.”

However, the deal was dogged by questions about where the joint firm would be based and how it would pool liquidity between the exchanges.

Those questions intensified after the UK voted to leave the European Union.

“Timing is everything,” said Neil Wilson, an analyst at ETX Capital.

“Brexit effectively killed this deal off nine months ago, so it’s fitting that EU competition commissioner Margrethe Vestager delivered the coup de grace just a couple of hours before the UK triggers Article 50,”

‘Disproportionate’

The final blow to the deal came from EU regulators’ concerns about the combined firm’s control over the clearing of bonds and fixed-income products in Europe.

LSE, which also operates the Italian stock exchange and has other businesses in Europe, had offered to sell its France-based clearing house to deal with those concerns.

However, the commission decided that this remedy did not go far enough.

Margrethe Vestager, the EU commissioner in charge of competition policy, said: “The European economy depends on well-functioning financial markets.

“That is not just important for banks and other financial institutions. The whole economy benefits when businesses can raise money on competitive financial markets.”

The commission had ordered LSE to also sell its 60% stake in MTS, a fixed-income trading platform, but LSE said the move was “disproportionate”.

“In the end, LSE made it easy for the regulators by refusing to sell its stake in MTS,” said ETX Capital’s Mr Wilson.

Investors responded positively to the deal’s collapse, he added, with shares in LSE rising 3% and in Deutsche Boerse by 1%.

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