LSE's $15 Billion Refinitiv Deal Is Cleared by Key European Regulator -- Update
January 13 2021 - 10:05AM
Dow Jones News
By Ben Dummett and Valentina Pop
Europe's antitrust watchdog on Wednesday approved London Stock
Exchange Group PLC's $15 billion deal to acquire Refinitiv Holdings
Ltd. with conditions, removing a key hurdle in the company's bid to
challenge Bloomberg LP, S&P Global Inc. and other industry
heavyweights offering financial data.
The decision by the European Commission ends a monthslong probe
into the risks of the deal. The probe centered on concerns the deal
could give the LSE undue market power over trading and clearing
government bonds, interest rate derivatives, and the sale of
financial data such as stock- and bond-price quotes.
LSE is betting on the Refinitiv deal, first announced in 2019,
will help it create a financial data juggernaut. It has been
diversifying its operations away from stock trading and other
traditional exchange businesses toward clearing and higher-margin
data services that feed the rise of quantitative trading and
passive investing.
Still, the largest exchange company in Europe by market value
agreed to several concessions to win regulatory approval for the
tie-up. London has long been Europe's biggest financial center,
anchored in part by the LSE. The concessions -- in place for 10
years -- center on the LSE granting equal access to its venue data
to all existing and future competitors, continuing clearing
services in line with EU regulations despite Brexit and the sale
Borsa Italiana Group. The concessions also include a dispute
resolution system for third parties to go to if the LSE doesn't
comply with its commitments.
Following Britain's breakoff from the European Union, the bloc
is under pressure to bolster the capabilities of the continent's
financial institutions, some analysts say. The remedies for the LSE
deal highlight that pressure: It potentially undercuts the
exchange's ability to generate additional revenue from the proposed
deal in areas such as clearing and trading government bonds and
derivatives, and cross-selling data and other products between its
customers and those of Refinitiv.
The concessions also come as competition in the data industry is
stiffening, representing another challenge to the LSE. In November,
S&P Global Inc. agreed to acquire IHS Markit Ltd. for about $44
billion, bringing together two of the largest providers of data to
Wall Street.
A LSE spokeswoman wasn't immediately available for comment. The
exchange operator has said that it expects to close the deal by the
end of March.
The LSE didn't comment beyond confirming the EC's decision. It
expects to close the deal by the end of March following receipt of
"a small number of merger control and financial regulatory
authority approvals."
"Today, we can approve the proposed acquisition," said European
Commission Vice-President Margrethe Vestager, in charge of
competition, "because LSEG offered commitments that will ensure
that the markets will remain open and competitive."
The merger as it was initially planned would have brought
together the LSE's heavy influence trading of government bonds in
Italy, one of Europe's largest debt markets, through its ownership
of Borsa Italiana with Refinitiv's majority-owned bond trading
platform, Tradeweb. But to appease the commission, the U.K.-based
exchange operator agreed in October to sell the Milan-based
exchange to pan-European rival Euronext NV for 4.33 billion euros,
equivalent to $5.27 billion, mitigating the commission's concerns
over the LSE gaining excessive market share and pricing power
trading European government bonds.
The regulator had also indicated the deal, without remedies,
risked deterring competition for trading and clearing interest rate
swaps because of the high barriers to entry that would-be
competitors face and their customers' reluctance to switch trading
venues or clearinghouses to settle trades.
The LSE is a dominant player in the settling of interest-rate
swaps traded off an exchange -- the largest category of derivatives
globally, according to the commission. Refinitiv gives it access to
its Tradeweb trading platform for interest-rate derivatives. That
could have allowed the combined entity to require traders that use
the LSE's clearing facility to also trade those derivatives on
Refinitiv's platform to boost business.
To address this type of potential anticompetitive behavior, the
commission is preventing the LSE from using its leverage clearing
swaps to force customers to also trade swaps over its platform.
That could represent a loss in revenue for the potential benefit of
rival derivative trading and clearing platforms in continental
Europe.
Still, the concession is consistent with the LSE's long time
stance of allowing traders to clear and trade derivatives on
different venues as a way of attracting business by offering
customers greater flexibility.
Similarly, the commission is requiring the London exchange to
adopt safeguards to ensure that the combined group doesn't offer
degraded stock quotes and indexes to existing and future
competitors.
Write to Ben Dummett at ben.dummett@wsj.com and Valentina Pop at
valentina.pop@wsj.com
(END) Dow Jones Newswires
January 13, 2021 09:50 ET (14:50 GMT)
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