LSE bid prompts fears of US-style rules in Europe

By Stewart Fleming

Date: 23/03/06

The possibility of a foreign takeover of the London Stock Exchange (LSE) is raising fears that US-style regulation will penetrate the EU.

While merger talks con-tinue between Germany's Deutsche Börse and Euro-next, its Paris-based rival, the EU's leaders are readying themselves for a shift in the regulatory landscape.

Industry experts told European Voice that they did not expect the UK Prime Minister Tony Blair or Finance Minister Gordon Brown to oppose a US takeover of the LSE. The US-based NASDAQ made a EUR 3.51 billion bid earlier this month. There is speculation that the New York Stock Exchange (NYSE) will mount a rival, and more credible, bid for LSE.

A US-UK tie-up would raise the question for EU regulators of whether London would have to adopt American-style regulation and corporate governance. US Securities and Exchange Commissioner Roel Campos has said that any holding company "would likely be mostly regulated by the SEC".

A securities market expert from a German bank said that a US takeover of the LSE could lead the UK government to start pushing for US-style regulations in the EU and to tilt the transatlantic regulatory dialogue in America's direction.

One European businessman warned that the LSE could be affected by US protectionism. He asked: "If London were a wholly owned subsidiary of the NYSE, how much independence would it retain? Would it be allowed by its giant parent to remain, as it is now, the most successful stock exchange at attracting listings from Asia and the rest of the world, more successful than the NYSE?"

He added: "What would happen if, for example, America got into a serious diplomatic confrontation with, say, China or Russia? How would the Congress react if shares in companies from these countries were quoted on an LSE which was a subsidiary of the New York exchange?"

A major concern for EU officials is the potential fragmentation of stock exchange liquidity just at a time when policy in Brussels is to try and encourage consolidation of EU exchanges so that they can provide capital more efficiently to the Union's economy.

The battle for the LSE raises the stakes in the on-off talks between Deutsche Börse and Euronext, amid speculation that a transatlantic deal could be a step towards creating a global stock exchange. There are fears that Deutsche Börse and Euronext might also be vulnerable to a takeover.

Angela Merkel, the German chancellor, is taking an active personal interest in the Deutsche Börse-Euronext talks. She discussed the subject with the French President Jacques Chirac at the Franco-German summit last week (14 March). "It could be an interesting project," she remarked afterwards.

A Deutsche Börse-Euronext merger would also trigger a restructuring of Europe's clearing and settlement systems, the systemically important 'pipes' through which shares and other securities are exchanged for cash.

Deutsche Börse is a so-called vertical silo, which links in a single business securities trading and post-trade clearing and settlement. Euronext has said publicly it does not favour this business model. European Internal Market Commissioner Charlie McCreevy has announced that he will, by June, make a decision as to whether or not the Commission needs to propose legislation in this field.

Article discusses the question whether the possibility of a US takeover of the London Stock Exchange (LSE) would mean that US-style regulation could penetrate the EU. The US-based NASDAQ had made a EUR 3.51 billion bid earlier in March 2006 and there was speculation that the New York Stock Exchange (NYSE) would mount a rival, and more credible, bid for LSE.

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