1. Deutsche Börse / London Stock Exchange ACE conference, Madrid
Gábor Koltay
DG COMP, CET
16 November 2017

2. The LSE / DBAG transaction
EUR 27bn deal
Globally third
Europe's largest
exchange by far
Prohibition:
fixed income clearing
fixed income settlement, custody and collateral management
single stock derivatives clearing and trading ,
24 August Notification
28 September Art. 6(1)(c) decision
29 March Art. 8 Adoption
6 February Remedies submitted
27 February Final remedy deadline
March to August 2016
(23 June Brexit vote )
13 December Statement of Objections
Pre-notification
Phase I
Phase II

3. Exchanging financial products
Composite service
Listing, Trading, Clearing, Settlement
Financial exchanges = point of sale
In-house vs. multi-firm service modes
Bundling vs. free customer choice
Several financial products
Equities, derivatives, bonds, repos
Links between products, for example correlated risk profiles

4. Overview of the parties' activites

5. The main theories of harm
Bonds + ATS traded and CCP cleared repos
Small increment, but parties the only clearing service providers
Vertical foreclosure of Euroclear in settlement
Strong position in upstream clearing and DBAG's presence in settlement services (Clearstream)
Single stock derivatives
Large horizontal overlap from in-house and multi-firm service offerings
Remedy: Part of LSE's clearing house (LCH SA)
Market test 1: MTS, a trading platform, necessary for viability
Market test 2: Scope economies in clearing question LCH SA's competitiveness

6. Merger effects with composite services Single stock derivatives
DBAG integrated bundle: own clearing and trading services (C1 and T1)
Eurnext composite bundle: LSE clearing (C2) and of Euronext trading services (T3)
Vertical and/or horizontal effects?

7. Horizontal and vertical effects Single stock derivatives
A simple model of complements: Economides & Salop (J. Ind. Econ., 1992), Choi (J. Ind. Econ., 2008)
Similar arguments, different framework: Inderst & Valletti (Scand J Econ, 2009)
Both horizontal and vertical effects
Horizontal for integrated bundle: Incentives to increase the price of T1C1 due to classic diversion
Margin squeeze through price of C2: due to classic diversion, merged firm will increase price of C2
Price of T3 and the C2T3 bundle is ambiguous

8. Economies of scope and competitive assessment – Interest rate derivatives
Economies of scope in clearing
Less costly to clear two financial products with negatively correlated risk (Cross-margining, portfolio margining)
 Incentives to clear on one platform
 Facilitates entry to a negatively correlated market
Interest rate derivatives
How strong are the scope economies for the new entrant?
DBAG
LSE
Exchange traded
Eurex
Curve global
OTC Clear
LCH
OTC