NEW YORK ( TheStreet) - The European Union's competition authority has rejected a merger between NYSE Euronext ( NYX) and Deutsche Boerse, according to Dow Jones, which cited an unnamed senior European Union official.

The proposed deal would form the largest stock and derivatives exchange in Europe and one of the largest in the world.

If the EU were to block the merger, it would cut against a December approval by the Department of Justice, contingent on a divestiture plan. The recommendation to reject the tie up will now face a 27-member European Commission competition panel headed by Joaquín Almunia with a Feb. 9 deadline for a formal decision.

The DoJ approved the $9 billion merger between the two exchanges when it was announced in February 2010, contingent on divestiture of Deutsche Boerse's 31.5% stake in Direct Edge, the fourth largest stock exchange operator in the United States. However, because the merger brings together two of the biggest players in European derivatives and exchange traded funds, it's the EU's antitrust approvals that many see as key.

The New York Times is reporting that Duncan Niederauer, CEO of NYSE Euronext and Reto Francioni of Deutsche Börse are slated to meet in New York to discuss the merger on Wednesday. Separately, Sandler O'Neill wrote in a research report that NYSE Euronext may be worth $30 a share as a standalone, if the merger were to fail.

NYSE Euronext shares rose over 4.5% to $27.79 in Wednesday trading on reports of the potential European regulatory opposition. Still, shares sit below the $36.09 a share price that Deutsche Boerse offered for NYSE Euronext -- signaling continued uncertainty over the deal and deterioration in the value of the $9 billion merger price.

For more on NYSE Euronext shares, see Murray Stahl's portfolio at Horizon Asset Management.

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The merger was subject to a second review by the European Union in August because it was seen to concentrate derivatives trading and clearing businesses, while precipitating a player with a 90% market share in highly used European interest rate and stock index linked futures and options.

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.

In November, NYSE and Deutsche Boerse said they plan to open up their combined derivatives businesses to rivals and divest other units in order to preempt a potentially unfavorable ruling. They later committed to further divestitures in December. Separately, Bloomberg reports that the companies may divest NYSE's Liffe single-stock derivatives business, while licensing Eurex to a third party.

About speculation of a merger blockage, NYSE Euronext said, "NYSE Euronext has not yet received any official decision by the European Commission regarding the requested merger of both companies," in a press release.

"We have clearly demonstrated to the European Commission the strong benefits that our combination will bring to a broad set of stakeholders in Europe, Deutsche Börse added in a statement.

In objecting to antitrust reviews, NYSE Euronext and Deutsche Börse make the point that over the counter derivatives should be considered in calculations the combined company's potential market share, lessening concentration concerns. The merged company would also only hold a sub 20% market share on exchange traded derivatives, less than competitor CME Group ( CME)

The deal between Deutsche Boerse and the leading U.S. stock exchange isn't the only exchanges deal that's come under regulatory scrutiny.

Earlier in the year, Nasdax OMX Group ( NDAQ) and IntercontinentalExchange ( ICE) walked away from an acquisition of NYSE Euronext because of a potential antitrust lawsuit from the U.S. Department of Justice.

The European Union is expected to provide a final decision on whether to approve or block the deal by Feb. 9.

-- Written by Antoine Gara in New York