NYX Nyse Euronext

European Union lawmakers discussed further extending the Feb. 9 deadline for ruling on the proposed merger of NYSE Euronext (NYX) and Deutsche Boerse AG (DB1.XE, DBOEF) before ultimately choosing to block the deal, according to records of the European Commission's Feb. 1 meeting.

It took policymakers just over an hour to reach a decision on the matter, though some raised questions as to how prohibition of the exchange merger would impact regulators' efforts to shift more off-exchange derivatives trading toward regulated venues, and the prospects for publicly listed companies to raise investment capital in the European Union.

E.U. antitrust examiners led by Commissioner Joaquin Almunia, who was closely involved in weighing the proposed $18 billion deal, determined that combining Europe's two largest derivatives markets by volume would have constituted a monopoly harmful to both customers and potential new exchanges.

NYSE Euronext and Deutsche Boerse had protested that view, arguing that competition officials should have included in their competitive equation the much-larger market in derivatives that are traded off-exchange, such as interest-rate swaps. The Bank for International Settlements estimated the interest-rate swap market's size at $441.6 billion in notional value as of last June, compared with $76 billion for interest-rate contracts traded on exchanges like those run by NYSE Euronext and Deutsche Boerse.

Minutes of the European Union meeting released this week show that members of the commission did consider the question of such over-the-counter derivatives markets, though in a different way.

Allowing Deutsche Boerse and NYSE Euronext to combine their derivatives units would have made their existing business even more profitable as more off-exchange derivatives shift toward clearinghouses and regulated trading platforms, Almunia told EU commissioners, and would also raise the prospect of a monopoly for users of such markets.

Extending the deadline for deciding the deal -- which had already been pushed back several times from the initial Dec. 13 end-date -- was possible but pointless, according to Almunia.

He assured commissioners that he had discussed several times with Deutsche Boerse and NYSE Euronext the only possible remedy that would ease concerns over concentration, namely the sale of one of the company's derivatives exchanges. Both firms had vowed from the start that this step wasn't one they were willing to take.

European Commission members in the end expressed "very broad support" for the decision to block the deal, according to the meeting minutes. European Commission President Jose Manuel Barroso urged all members to back the decision to safeguard the body's "credibility."

Spokesmen for Deutsche Boerse and NYSE Euronext declined comment Wednesday.

EU commissioners did weigh the prospect of allowing a European "champion" exchange company to form, which would have provided a leading platform for regional companies to raise capital by tapping a broader public market. The merger partners had promoted their deal as enabling Europe to offer a more-united financial sphere and provide a stronger voice as regulators around the world look to coordinate new rules for trading.

The policymakers also expressed "regrets" that "internal information had obviously leaked out" in the process of weighing the merger. Almunia told the body that the leaks "highlighted the very powerful lobbying campaign run by the two [exchange] groups."

-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com

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