Europe left exposed by demise of Anglo-German exchange merger

Wed Mar 1, 2017 4:26am EST
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By Huw Jones

LONDON (Reuters) - The European Union could be left with no exchange big enough to compete with U.S. rivals and no trading link into Britain if it allows the London Stock Exchange (LSE.L: Quote) and Deutsche Boerse (DB1Gn.DE: Quote) merger to die.

Although the Anglo-German tie-up is awaiting formal EU regulatory approval, the LSE said on Sunday it would not meet an extra condition from Brussels, effectively pulling the plug on the 29 billion euro ($30.7 billion) deal.

For exchanges in the EU, that means a vision of creating a major trading house capable of competing with U.S. giants like InterContinentalExchange (ICE.N: Quote), Nasdaq (NDAQ.O: Quote) and CME CME.N or Asia's growing exchanges is over for now.

"Politics is ultimately going to get in the way of further movement on European financial markets," Rebecca Healey, head of market structure and strategy in Europe for Liquidnet, a trading platform, said on Tuesday.

"Ultimately, national exchanges are a protected species."

Deutsche Boerse Chief Executive Carsten Kengeter had warned that a failure to complete the LSE deal would weaken Frankfurt, Germany's main financial center, robbing it of a "bridge" to London, Europe's only global money hub.

And while Deutsche Boerse could be left with no access to the British capital once Britain leaves the EU, LSE will not be isolated from the continent even if Britain fails to negotiate EU financial market access after Brexit.

The London bourse has a clearing house in Paris, and owns the Italian exchange and its clearing and settlement units, giving it a strong continental base to build on.   Continued...

FILE PHOTO - The London Stock Exchange is seen in the City of London, Britain, April 11, 2011.  REUTERS/Toby Melville/File Photo