26 October 2006

Independent: City demands Börse merger inquiry

Deutsche Börse’s ambitions to take over Euronext suffered a body blow yesterday as groups representing the City of London's financial community called for a full-scale competition investigation into its proposals.

The stockbrokers' lobby group Apcims urged London brokers to join a united front against the plans amid fears that it would result in the closure of London's futures exchange, Liffe, owned by Euronext, which would be merged with Deutsche Börse's Eurex under its plans. Liba, which represents the biggest investment banks, also believes that the proposals warrant a full investigation by Europe's competition watchdogs.

Their views are crucial because the European Commission has sent their members questionnaires seeking views on the proposals. A full inquiry would be triggered if enough of them object. Angela Knight, Apcims' chief executive, said: “There needs to be a push to say this is wrong. We have fantastic, innovative exchanges in London but we fear the Deutsche Börse proposal will have the effect of shutting Liffe down. Who owns an exchange does not matter, but to reduce the number of derivatives exchanges would be wrong. To put together Deutsche Börse and Euronext is very much an old European solution but we live in a global world.”

Alan Yarrow, Liba’s chairman, said: “This is a hugely complex area in which, in my mind, can't be given sufficient attention in the very short period of time that the EC’s stage-one inquiry is offering.” He added: “As a general rule we, as users, would prefer to have competition between suppliers.” That would appear to make a full inquiry - which could last more than a year – a near certainty.

Euronext’s preferred deal is with the New York Stock Exchange and it has already said that such an investigation would raise questions over whether Deutsche Börse would be able to complete a deal. It plans to seek the approval of shareholders for the NYSE merger at an extraordinary general meeting in mid-December.

However, the NYSE remains under pressure to sweeten its deal. A source close to the talks said: “They need to put clear blue water between their bid and Deutsche Börse’s proposals. Currently the NYSE’s proposals would see the merged company's board containing just nine directors from Euronext but 11 from the NYSE, despite the fact that it has been portrayed as a “merger of equals”. The NYSE is under pressure to make it 10 directors each.

Hugh Freedberg, who runs Liffe, has called on London to support the exchange saying that shifting the hub of the business to Frankfurt would “damage the City of London”. Deutsche Börse has said it is committed to maintaining a strong presence London and has denied it would shut Liffe down.

Meanwhile Ed Balls, the Treasury’s City minister, yesterday mounted a defence of the London Stock Exchange's lightly regulated Alternative Investment Market (AIM). In a speech he said: “When others argue that it is the UK which is making the mistake by allowing an excessively light touch in our regulation - or specifically criticise the regulation of the AIM market – I disagree.” It is understood that a number of foreign exchanges and jurisdictions have been trying to persuade the Treasury to tighten the regulation of AIM, which has been attracting large numbers of overseas listings.

However, London’s financial community does not want any changes to AIM’s regulatory framework, which has made it hugely successful. Recent comments by Nasdaq’s chief executive, Bob Greifeld, have raised concerns over AIM's future should Nasdaq succeed in its ambition to takeover the LSE.

© The Independent