NEW YORK (TheStreet) -- To get regulatory approval for their $9 billion merger announced in February, NYSE Euronext (NYX) and Deutsche Boerse will open up their combined derivatives businesses to rivals and divest other units.
In October, European Union competition authorities added to objections of the merger, which values NYSE Euronext at $36.09 a share and received shareholder approval in July. The New York-based exchange has traded 25% below the merger price because of increasing scrutiny about the deal, falling trading volumes fell and global economic fears. On news of the derivatives remedy, NYSE shares rose over 5% to $28 a share in pre-market trading.
The merger was subjected to a second review by the European Union in August because it was seen to lead to increasing concentration in derivatives trading and clearing, potentially harming competitiveness. When announcing a second review, EU Competition Commissioner Joaquin Almunia said, "The proposed merger would remove a strong competitor from the market and would give the merged company by far the leading position in derivatives trading in Europe."
In October, the European Union further highlighted the combined company's dominance in derivatives trading and clearing as its biggest competition concern.The combination of the two companies would create Europe's largest equity and derivatives exchange. The NYSE's roots trace back to the 18th century, while stock markets under the Deutsche Boerse have a history that the company traces to the 16th century, according to its website. Concerns about the merger by regulatory authorities hinge on whether competitors would be able to access the clearinghouse to process derivatives trades that would come as a result of the merger. Clearing, a key piece of the 2010 Dodd Frank Act reform derivative of markets, lessens the credit risks of trading counterparts to the wider financial system -- and is seen to be a new profit center for exchanges. Currently, NYSE Euronext owns derivatives trading business NYSE Liffe and Deutsche Boerse is owner of Eurex, a similar platform. Both provide for trading of derivatives based on interest rates, bonds, equities, indices, commodities and swaps, as well as clearing functions. Today's news signals that both exchanges are going to allow rivals to access their clearinghouses, in a move to stem anti-competitive concerns. That move, along with a sale of equity derivatives units is seen by NYSE and Deutsche Boerse as the cure. "Eliminating the existing overlap in European single equity derivatives and ensures continued competition in European interest rate and equity index derivatives," both companies said in a statement Friday. The $9 billion deal between Deutsche Boerse and the leading U.S. stock exchange announced in February isn't the only deal that's come under regulatory scrutiny. In August, the U.S. Department of Justice filed an antitrust lawsuit against AT&T's (T)proposed $39 billion merger with T-Mobile.
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