Deutsche Boerse and NYSE Euronext are expected to announce a deal to create the world's largest exchange operator on Tuesday, setting aside political issues that threaten its completion.
Such local concerns over a wave of consolidation sweeping the industry surfaced in Asia. Singapore Exchange has tweaked its $7.9 billion bid for rival ASX to allow more Australian directors onto a combined board as it seeks to win over Australian politicians.
Nationalism has long been one of the biggest hurdles to exchange mergers. The marketplaces are often symbols of national pride and important to attracting business and capital.
Regulators too are paying close attention to the latest round of deals, including a bid by the London Stock Exchange to take over Toronto Stock Exchange operator TMX Group.
Exchange users have also raised red flags over the proposed deals.
Euronext and Deutsche Boerse are still screwing us on fees for clearing, the closing auctions and small and mid-cap trading - the areas where they still have virtual monopolies, said the head of markets at a large European bank, who declined to be named. A merger is concerning because together they will be more powerful and better placed to protect these monopolies.
The LSE deal with TMX has also run into foreign ownership concerns in Canada.
But despite rumblings about Middle Eastern ownership in Ontario, LSE shareholder Borse Dubai, which is owned by the ruler of the Gulf Arab emirate, has not been asked to trim its 20 percent stake, a source familiar with the matter said.
Meanwhile, key details of the Deutsche Boerse and NYSE tie-up have been hammered out, sources familiar with the plans said. And a definitive deal is due later on Tuesday, one added.
The Deutsche Boerse supervisory board was meeting to discuss the deal, a member of the board told Reuters. But several thorny issues have yet to be addressed, adding to concerns on both sides of the Atlantic.
Singapore Exchange's willingness to give ground and award an equal number of board seats to Australians and Singaporeans in the combined entity shows how local sensibilities are being overcome as the pressure to consolidate rises. The value of SGX's offer has not been changed under the new proposal.
All the resistance...has been political. The steps taken today should address some of those political issues, Mark Nathan, portfolio manager at Arnhem Investments, said.
Similar political and regulatory hurdles may threaten the Deutsche Boerse-NYSE Euronext tie-up.
The biggest question mark in general is obviously the European political and regulatory landscape coming out of this, one source said.
The Frankfurt- and New York-based companies were center stage in the merger frenzy that erupted last week and heated up on Monday as Brazil's BM&FBovespa said it was looking at its own prospects and as speculation that CME Group could jump into the fray intensified.
Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, might make a hostile bid for NYSE Euronext, citing bankers.
A spokesman for the Chicago-based exchange declined to comment. CME officials have been guiding investors away from expectations that it would do a merger deal.
BM&FBovespa, the world's fourth-largest financial exchange operator, is closely looking out for tie-up opportunities, Chief Executive Edemir Pinto told Reuters. Pinto said China and India were markets where it could expand.
SENSITIVE AND COMPLICATED
Deutsche Boerse and NYSE have worked out details such as senior executives but the name and location of operations have proven sensitive and complicated, a source said.
The companies had previously announced that NYSE Euronext head Duncan Niederauer would head the combined group, Deutsche Boerse Chief Executive Reto Francioni would be chairman, and that the German company's shareholders would get about a 60 percent stake.
At a 60-40 ownership split, 55 percent of shareholders would be U.S. investors, 11 percent from Germany, 11 percent from the UK and 23 percent from the rest of the world, a source said.
The board of the combined company would reflect the ownership structure, with 10 of the 17 members coming from the German side, a source said, adding that the numbers included both Niederauer and Francioni.
(Additional reporting by Philipp Halstrick, Paritosh Bansal, Adrian Bathgate, Saeed Azhar, Luke Jeffs and Narayanan Somasundaram; Writing by Alexander Smith; Editing by Jane Merriman)