Regulators and industry watchers on both sides of the Atlantic are scrutinizing the proposed merger between NYSE Euronext and Deutsche Boerse, announced Feb. 15. And both groups say the largest potential point of review will likely involve questions the European Union’s Competition Commission would raise about the options and futures markets, as well as in clearing.
Once merged, the Deutsche Boerse and the New York Stock Exchange would own five options exchanges combined, as well as more than 40 percent of single-stock options volume. They would include the International Securities Exchange, Eurex, NYSE Amex, NYSE Arca and NYSE Liffe.
The NYSE and DB would also own two large futures exchanges in NYSE Liffe and Eurex. Though, the two derivatives exchanges don’t compete head-to-head and generally don’t trade the same products, said Justin Schack, director of market structure analysis at Rosenblatt Securities. Still, the EU would have to determine whether the DB-NYSE merger would create any unfair competitive advantages in the space.
"It depends on how you define competition," Schack said. "If you’re asking: Do [NYSE] Liffe and Eurex compete with one another today for volume in the same products? The answer is, for the most part, no. But the possibility for competition is there, and some customers of these exchanges may not want that threat to disappear."
However in the United States, Chris Nagy, who heads order strategy and government relations for TD Ameritrade, expressed concern about the merger’s potential impact on clearing for U.S. retail investors. If DB applies to be a U.S. clearing agent, Nagy said, then it could force investors to use that clearing piece as a competitor to the Depository Trust & Clearing Corp., an industry-owned consortium. Currently, the NYSE uses the DTCC.
"The cost to clear could increase significantly if DB chose to push their clearing operations onto the NYSE," he said. "Essentially, they would have the ability to force you to go to their clearing."
There has also been speculation about whether DB would be the final suitor for the NYSE. Both Nasdaq and the London Stock Exchange have reportedly shown interest, as well.
The NYSE, which declined to comment for the story, has said regulators could approve the deal by the end of the year at the earliest.
