Deutsche Boerse AG sought to convince EU regulators to judge its bid for NYSE Euronext by assessing over-the-counter derivatives trading and not only its impact on the smaller exchange-listed market, in its bid to win clearance for the deal.
The European Commission is reviewing the $9 billion transaction only in terms of the exchange-listed market, sources have told Reuters. Securing EU regulatory approval is seen as the biggest hurdle for the operators, whose combination would create the world's largest exchange operator.
The narrower market underlines the impact of the combination, which would have more than 90 percent of the trade in exchange-listed futures in Europe, and has put pressure on the operators to offer significant concessions to secure regulatory approval for the deal.
Andreas Preuss, chief executive of Deutsche Boerse's Eurex derivatives unit, attended a closed-door hearing with regulators in Brussels on Thursday, urging them to take the broader view.
Today, we have pointed out that the derivatives market is a global market dominated by OTC (over-the-counter) trading, he said in a statement.
OTC volumes are substantially bigger than exchange-traded volumes -- OTC markets are a direct competitor to regulated markets that stand for transparency and effective risk management in derivatives trading, he said.
Preuss said the combination of the operators' Eurex and Liffe derivatives operations would increase transparency and risk management in derivatives trading.
Regulators by contrast have warned the exchange operators of the near-monopoly both in existing and future products from the combined group, in a statement of objections or charge sheet sent to them on October 5, according to a person who has seen the document.
Regulators are also concerned that rival derivatives platforms may not be able to enter the market if they do not get access to the merged operator's post-trade clearing facilities, the person said.
That document also outlined the Commission's reasons for assessing the deal only in terms of exchanged-listed futures trade (ETD).
The market investigation revealed that, depending on the category of customers, there is either no substitution between highly standardized ETD contracts or OTC contracts, or that such substitution may be limited to a small category of contract, the source said, citing the document.
Regulators pointed to a distinguishable group of customers that have no mandates to trade OTC derivatives and hence for whom OTC derivatives are not alternatives, the person said.
NYSE Euronext Chief Executive Duncan Niederauer and Deutsche Boerse CEO Reto Francioni were also in Brussels for the hearing.
The Commission is scheduled to decide by December 22 whether to clear the deal.
Guillaume Loriot, the deputy head of EU Competition Commissioner Joaquin Almunia's cabinet, and Eliana Garces Tolon, another cabinet member in charge of financial issues, led the Commission team at the hearing.
Other participants included Bernd Langeheine, deputy director general for mergers at the Commission, Nick Banasevic, who is handling the case and Commission lawyers.
Representatives from Germany, France, Britain, Spain, Sweden, Finland, the Netherlands, Belgium, Italy and Ireland were present at the hearing.
The London Stock Exchange and its Turquoise trading platform, Nasdaq, Euroclear, ICAP, Chi-X -- the largest pan-European platform -- Bank of New York Mellon and bank lobbying group the Association for Financial Markets in Europe also sent representatives to the hearing, which continues on Friday.
(Additional reporting by Edward Taylor in Frankfurt; Editing by Rex Merrifield and David Holmes)