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European Commission blocks LSE and Deutsche Bourse merger over competition concerns

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The European Commission has blocked the proposed merger between Deutsche Bourse and London Stock Exchange Group over concerns it would create “a de facto monopoly in the markets for clearing fixed income instruments.”

The commission revealed its decision in a release March 29 following an investigation. The deal between the two European stock exchange operators has been prohibited under the European Union Merger Regulation.

The merger would have combined the activities of the two largest European stock exchange operators, said the release. Between them, they own the stock exchanges of Germany, Italy and the U.K., as well as European clearing houses.

“The European economy depends on well-functioning financial markets,” said Margrethe Vestager, commissioner in charge of competition policy, in the release. “That is not just important for banks and other financial institutions. The whole economy benefits when businesses can raise money on competitive financial markets.”

Shortly after the European Commission's announcement, LSEG said in a statement it would terminate plans to sell its French clearing unit, LCH.Clearnet, to exchange operator Euronext. The divestment by LSEG was offered to allay antitrust concerns over the LSEG-Deutsche Bourse merger.

The commission had previously expressed a number of worries over competition as a result of the proposed merger, and had asked the exchanges to remedy its concerns. Ms. Vestager added that the merger would have “significantly reduced competition by creating a de facto monopoly in the crucial area of clearing of fixed-income instruments. As the parties failed to offer the remedies required to address our competition concerns, the commission has decided to prohibit the merger.”

In a regulatory filing in February, LSEG said it believed the European Commission would be unlikely to provider clearance for the deal due to a request by the commission for LSEG to divest its majority stake in electronic trading platform MTS.

The exchanges announced in March 2016 their plans to merge.

A Deutsche Bourse spokesman said the exchange will have to “study the vote in detail” before deciding its next course of action.