On August 3, 2005, the British Competition Commission issued its provisional finding on Deutsche Boerse’s and Euronext’s takeover bids for LSE. According to that finding, both bids for LSE would result in a significant lessening of competition in the provision of trading services in the UK. If Deutsche Boerse took over the LSE, the regulators would inter alia require Deutsche Boerse to relinquish control of Eurex, which contributed more than half of Deutsche Boerse’s annual profits in 2004. Euronext would be required to relinquish its grip on LCH.Clearnet, the LSE’s current provider of clearing services. Even if both potential acquirers would commit to these requirements, the British agency does not rule out the possibility of prohibiting both bids as the only means to resolve the anticipated competition concerns.
The European Commission seeks to implement European-wide capital markets, and one of the major fields yet remaining disintegrated is the trading, clearing & settlement level, which suffers from national fractionalism. The takeover of one de facto monopolist national trading platform provider by another one necessarily affects the trading environment in the relevant country. But, this aspect is true with respect to any of the 25 jurisdictions in which trading takes place. Looking through the domestic glasses, the UK agency petrifies the current fractional structure, despite the fact that the London capital market and its related businesses provides services and capital not just to the UK, but to all Europe. In the case of trading platforms, a market delineation that focuses on the domestic market predicts the outcome. This method also provides reasons to question the neutrality of the British agency, in general. Given that each of the 25 national agencies take the British Commission’s stance, the project of a Single European capital market will falter not on the level of the issuers (which — generally speaking — welcome supply of all-European capital), but on the level of the trading platforms.
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The Commission’s stance poses uncertainty to any potential acquirer of LSE and de facto functions as a barrier to takeovers. It further disregards interests of all consumers in Europe. It does, however, benefit the London dealer & broker community, which can continue enjoying their easy chair despite the fact that there are competitors around, which provide better services at lower costs. To the benefit of all Europe, we can only hope that markets are more intelligent than regulators. (It is hard, though, to overcome the network effects and economies of scale, which keep competition at bay at least within the national domain.) Thus, as a result of the Commission’s decision, we may see the less efficient London market being abscised from capital supply, as more and moe capital flows to markets that provide equivalent services more efficiently. It is nevertheless a shame for Europe that the fastest way to achieve market integration is blocked by competition law, a measure which is subject to European authority for decades and which – generally speaking — should further, rather than hamper market efficiency.
Dr. Dirk Zetzsche, LL.M. (Toronto)
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