The European Investors’ Association (EIA) is raising concerns about the impact of the proposed merger between the London Stock Exchange (LSE) and Deutsche Börse AG (DB).
In a letter to the European Commission, which represents the final step in approving the deal, the EIA cites concerns about the possible impact on competition if the planned merger goes ahead. Although the group appreciates the benefits for investors in terms of liquidity, price discovery and trading cost, it’s also worried about the market dominance that the combined firm would have.
“The merger of LSE/DB means that in several critical market segments there will be a move from a situation where there is substantial competition among three major market players to a quasi-monopolistic one in which the merged entity is overly dominant,” the EIA’s letter says. “Therefore, the merger will result in a substantial lessening of effective competition and reduction of freedom of choice.”
In particular, the group says that the combined firm would become the dominant provider of European benchmark indices. It also fears that smaller exchanges, such as Euronext, could see trading and listings gravitate to the new dominant player and that this could hurt the financing environment for venture firms.
Finally, the EIA suggests that if the U.K. goes ahead and leaves the European Union, a combined LSE/DB could result in regulatory arbitrage.
“A critical element in the equation involves the real possibility that companies seeking a listing on LSE/DB in the post-Brexit environment will circumvent DB, thus avoiding important EU rules in areas where the U.K. regime seems more malleable,” the EIA’s letter states. “LSE/DB, on the one hand, and the European continental exchanges, on the other, will not compete on an equal footing.”