Regulators Will Target NYSE, Deutsche Boerse Clearing

European regulators could push merger partners NYSE Euronext (NYX) and Deutsche Boerse AG (DB1.XE) to spin off part of their derivatives clearing business, according to a senior industry lobbyist.

Fusing NYSE Euronext's London-based Liffe unit with the German company's Eurex business would create a dominant force in European-listed derivatives, and antitrust officials may target the profitable clearing segment as part of any approval, said Anthony Belchambers, chief executive of the Futures and Options Association, which represents banks and brokers in the region.

"Clearly they're going to be looking very closely at this," Belchambers said of the regulators' stance. He was speaking in an interview on the sidelines of an industry conference organized by the Futures Industry Association, the FOA's U.S. counterpart.

Deutsche Boerse has in the past successfully fought efforts by some European lawmakers to force the separation of its clearing business, and analysts said a renewed push could effectively sink the planned NYSE Euronext deal.

Belchambers said regulators are likely to focus on exchanges' control of clearing trades in futures and options contracts listed on their markets, a framework that has enabled market operators like Eurex and Liffe to fend off competitors in fixed-income and stock-index contracts.

NYSE Euronext and Deutsche Boerse last month agreed to a $25 billion combination that would create the world's largest exchange operator and a significant competitor to CME Group Inc. (CME), which dominates U.S. futures trade.

The near-monopoly in derivatives clearing enjoyed by CME through its 2007 deal to acquire the Chicago Board of Trade raised similar concerns among U.S. competition authorities, who ultimately cleared the transaction.

The Futures Industry Association raised concerns about the Chicago transaction but has made no negative comments so far on the proposed NYSE tie-up.

Belchambers said that banks and trading firms will be watching closely for additional details around the planned NYSE-Deutsche combination, as they seek to balance potential cost reductions in technology and collateral with the amount of synergies that ultimately will be passed onto the merged entity's shareholders.

The agreement could be scuppered, however, if competition authorities reduce the profitability or protective aspects of the derivatives business, he said.

-By Jacob Bunge, Dow Jones Newswires; 312-307-4879; jacob.bunge@dowjones.com

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