The EU’s competition commission will start to question institutions in London and Frankfurt next month over whether the concessions offered by the London Stock Exchange and Deutsche Börse are sufficient to allow their merger next summer.
A ruling by Brussels in its favour would be one of the last two hurdles the deal has to clear. Authorities in the German state of Hesse, home of the Frankfurt stock exchange operated by the Börse, are questioning what the implications of the merger will be for Frankfurt as a financial centre.
A merger of the stock exchange and the Börse would create a global exchanges powerhouse with annual revenues of an estimated €4.7 billion. Although both sets of investors voted in favour in the summer, it has been dogged by controversy in London and Frankfurt.
Last week the LSE, which has agreed to sell the French arm of LCH Clearnet to calm fears over potential dominance in derivatives trading, said that it had identified Euronext as the preferred buyer.
Euronext, quoted in Paris and operating four continental exchanges, is the only obvious buyer, and the deal is expected to be worth about €400 million.
The commission will question market participants to see if this goes far enough. A decision from Brussels is expected on March 13, after the LSE and the Börse asked for extra time to find a buyer. Others, including CME Group and Intercontinental Exchange, were seen as being in the frame.
The emergence of Euronext as preferred buyer would seem to seal the deal, which is contingent on the merger going ahead.
Hesse is expected to await the Brussels ruling before making its decision, but it is expected that the state authorities will follow the EU line.
There are concerns in the UK that the deal will see business shifting from London to Frankfurt, and at the seeming uneven split of the all-share merger, Börse shareholders will end up with 54 per cent of the new group. Its defenders say that almost 40 per cent of Börse shareholders are British institutions.
In Germany the vote by Britain to leave the EU provoked criticism over the decision to have the headquarters in London. There has been speculation that Hesse, in exchange for waving through the deal, will want concessions such as job guarantees or pledges of investment.
When the EU Commission published its concerns over the merger this month they were less weightier than some had feared, raising expectations that Brussels will wave the deal through, closely followed by Hesse.
If the deal does clear both hurdles, it should complete in June.