21 June 2006

Telegraph: Euronext spurns new offer from Germans

Euronext has dismissed a revised merger offer from Deutsche Börse in part because it could spell the end of the road for Liffe, the London International Financial Futures and Options Exchange.

Last night the pan-European exchange dismissed its German rival’s new offer out of hand, without even calling a board meeting to discuss the proposals. Chief executive Jean-Francois Theodore is understood to believe the latest amendments are largely cosmetic. He continues to think that a merger with the New York Stock Exchange is in Euronext's best interest.

Deutsche’s proposals for Liffe, which would see it effectively drop Liffe Connect, the derivatives exchange’s trading platform, were central to Mr Theodore’s thinking. The platform is used in 31 countries across 800 different sites but, under the German’s proposals, Liffe Connect would cease to exist, with customers migrating to Deutsche Börse's Eurex platform.

Hugh Freedberg, chief executive of Euronext Liffe, believes the German proposal is not in users’ best interests. “Users would be faced with being reversed back into a platform that is not fitfor-purpose, saddled with the costs of disconnecting, and face having to adapt products to fit Eurex,” said Mr Freedberg. “It would be very bad for London as in effect this would be a way of migrating everything back to Frankfurt.”

The plan could also spell trouble for LCH.Clearnet, the clearing house partially owned by Euronext, as Deutsche Börse might also want to move the clearing of derivatives products to Frankfurt. “If that were the case, London would lose out in two ways,” added Mr Freedberg.

The potential merger of Liffe with Eurex could fall foul of the European Union’s competition regulator, as it would see a unification of Europe’s largest derivatives platforms. “Customers want choice, and this creates a European monopoly,” said Mr Freedberg. His comments were echoed by those of a Euronext spokesman, who confirmed that Mr Theodore had dismissed the German proposal. “This latest statement contains nothing new and is unclear on some strategic issues.”

Mr Theodore and his executive team are understood to have considered that the proposals - delivered by a press release on Monday afternoon - were barely different from those delivered by the German exchange on May 22. “On trading platforms, Deutsche Börse would oblige our customers to abandon their Euronext Liffe Connect trading platforms,” said the Euronext spokesman. “This would have severe potential implications for the London market and potentially costly changes for users.”

The spokesman went on to say the new proposal was “vague on information technology” and there remained “execution risks on derivatives, anti-trust issues and the clearing of settlement”.

© Daily Telegraph