Hertie School publishes study on impact of Deutsche Börse AG-NYSE Euronext Merger on European markets

Berlin (ots) - The Hertie School of Governance today published a
study by Prof. Dr. Henrik Enderlein examining the impact of the
merger between Deutsche Börse AG and NYSE Euronext on European
markets. Henrik Enderlein, from 2001 to 2003 Economist at the
European Central Bank in Frankfurt, is Professor of Political Economy
at the Hertie School and in this capacity an expert on European
economic policy and international financial markets. The study
concludes that the merger can present Europe with a chance to
strengthen its financial market architecture and regain lost ground
relative to other financial centres. Most of all, the merger supports
regulatory efforts towards enhancing stability and transparency along
with the desired further consolidation of the fragmented European
financial market. The study was commissioned by Deutsche Börse AG.

1. Boost to European financial centre competitiveness

Exchanges notably benefit the financial centres they serve with
capital market access and internationally recognised brands. Europe
has lost ground in the global competitive lineup in recent years.
According to the Global Financial Centres Index, Frankfurt dropped
from 10th to 14th place in the global rankings between 2007 and 2011.
Paris fell from 11th to 20th. Asian trading hubs such as Hong Kong,
Singapore, Tokyo and Shanghai made great leaps forward in the same
period, overtaking many European centres. In the author's view, a
merged transatlantic exchange creating a global brand and global
market access for a large number of European exchanges can
consolidate the strongly fragmented European market landscape. The
enhanced positioning in global growth markets will consequently tend
to strengthen rather than weaken the growth prospects of the merged
entity and the affected financial centres in global markets. "To keep
its global significance," says Enderlein, "the European financial
market must see itself as a unit. If everything stays as it is, I
personally wonder if it can stay competitive."

2. Enhanced financial market stability and international
regulatory cooperation

Nearly 90 percent of global derivatives trading now takes place
over-the-counter (OTC) and away from regulated exchange platforms.
Limited regulatory reach, the lack of collateralisation and
insufficient transparency in the OTC market therefore pose systemic
stability risks. A transnational integrated and regulated platform
for trading and after-market transactions is, in the author's
opinion, a good infrastructural response to the financial market
instability that has largely resulted from unregulated off-exchange
derivatives trading. The planned merger of Deutsche Börse and NYSE
Euronext could additionally work towards one of the European Central
Bank's key demands with the creation of a liquid, strong central
counterparty (CCP) with established risk management capabilities
under euro area supervision. A transatlantic merger could also help
regulators in Europe and the USA cooperate more closely. The
combination would therefore strengthen regulatory efforts towards
cooperation from the market-side and open the way to avoiding a
further "race to the bottom" that results from different standards
and regulatory arbitrage, the author writes. Enderlein: "We can
continue to look on as stock market transactions migrate to 'dark
pools' or even unregulated OTC markets. Or we can work with the
global market leader to set strong standards for both sides of the
Atlantic and significantly enhance financial market stability in the
process."

3. Greater financial market integration, cost efficiency and
harmonisation

Fragmentation of markets and relatively higher costs of
cross-border securities transactions have for many years prompted
calls for consolidation among European trading centres. The author
believes that the currently envisaged creation of a pan-European and
transatlantic exchange could further advance such consolidation and
hence strengthen the integration of the European financial markets.
Especially in the rapidly growing cross-border trading sector,
integration of the two platforms promises economies of scale leading
to further cost reductions and greater liquidity for clients.

Based on his analysis of the merger, Enderlein recommends to
policymakers and regulators to adopt a holistic approach when
assessing the merger: "The merger can be an opportunity for European
policy-making in their efforts to create a more stable and integrated
European financial market."

The Study "The Economic Impact of the Deutsche Börse-NYSE Euronext
Merger on the European Financial Markets" and two illustrative charts
are available for download at
www.hertie-school.org/enderlein/mergerstudy

The Hertie School of Governance in Berlin is an international
teaching and research centre of excellence that prepares students for
leadership positions in government, business and civil society. An
internationally-recruited faculty, interdisciplinary in outlook,
research, and teaching, offers analytically-challenging and
practice-oriented courses on governance, policy analysis, management
and leadership and helps students grow intellectually in a
professional, research-intensive environment, characterised by public
debate and engagement. The School was founded in 2003 as a project of
the Hertie Foundation, which remains the major partner.

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