Companies hopeful of a single Euro-American stock market listing will have to think again, after the European Commission prohibited the merger of NYSE Euronext and Deutsche Börse on competition grounds. Commission Vice President in charge of competition policy, Joaquín Almunia justified the decision on the basis that the concentration would have led to a near monopoly in European financial derivatives worldwide.

The Commission found that the merged entity would have controlled more than 90% of global trade in derivatives markets, considered to be at the heart of the financial system. Derivatives are financial contracts the values of which are derived from an underlying asset, such as interest rates. They serve as insurance against price movements and reduce the volatility of companies’ cash flows. Eurex (Deutsche Börse) and Liffe (NYSE Euronext) are the two largest exchanges in the world of financial derivatives based on underlying European assets.

The proposed merger was notified to the European Commission in June 2011. After the Commission opened an in-depth investigation, the two exchanges offered remedies to overcome possible objections. However, those proposals were found to be inadequate to solve the identified competition concerns. In particular, they offered to sell Liffe’s derivatives division based on European equities but not the division based on European interest rates, considered to be a more significant area by the European Commission. In the latter case, the Commission considered as insufficient the proposal made by the exchanges to provide access to the merged company’s clearing for some categories of new contracts.

NYSE Euronext and Deutsche Börse have disputed the Commission’s view of the market, but the New York exchange has confirmed that the parties are in discussions to terminate their merger agreement.

Contributed by Claire Waterson