ETF trading hubs LSE and Deutsche Boerse confirm merger talks

Feb 23rd, 2016 | By | Category: ETF and Index News

The London Stock Exchange Group has confirmed in a RNS feed that it is in talks with Deutsche Boerse over a potential merger of equals of the two businesses.

ETF trading hubs LSE and Deutsche Boerse confirm merger talks

ETF trading hubs LSE and Deutsche Boerse have confirmed that they are in merger talks.

Should the merger go ahead, both companies will continue to operate under their current brand names, but it would see the LSE holding 45.6% of the merged group and Deutsche Boerse the remaining 54.4%, according to the RNS feed. The combined group would have a board composed of equal numbers of LSE and Deutsche Boerse directors.

If the two exchanges were to merge it would see two of the biggest platforms for exchange traded fund trading in Europe coming together. Germany, Italy and the UK currently have the largest and most actively traded ETF markets in Europe. The LSEG already owns Borsa Italiana.

According to data from the Deutsche Bank ETF Annual Review and Outlook, the LSE held 32.4% of ETF exchange trading market share in Europe last year, while Borsa Italiana had 10.8% – a combined total for the LSEG of 43.2%. Deutsche Boerse had a market share of 24.4% in 2015. If a merger were to take place it could see LSEG hold market share in on-exchange ETF trading of 66.8% in Europe.

The LSEG’s February report shows that the total on-exchange value traded for ETFs in January 2016 was £23.5 billion (244,000 trades), which was up 10% compared to January 2015.  Similarly, the total on-exchange value of ETFs traded for 2016 was £25.6 billion (300,000 trades), up by 8% compared to the same period last year. According to a note from LSEG, the LSE remains the leading exchange for fixed income ETFs, emerging market ETFs and exchange traded commodities (ETC) trading in Europe.

Commenting on the news, Deborah Fuhr, partner and co-founder of ETFGI, said: “There are synergies and benefits of this possible merger. Notably the post trade settlement, derivatives operations, and ETF trading and settlement across different European venues. There is also the benefit of the LSE’s ability to trade in different currencies, which the Deutsche Boerse does not currently offer.”

The union would also bring together two major index groups, FTSE Russell and STOXX. Data from ETFGI shows that STOXX, which is owned by Deutsche Boerse, ranks second in Europe for European ETFs and ETP assets linked to its indices with 21.8%. FTSE Russell, owned by LSEG, ranks fourth in Europe for European ETFs and ETPs linked to its indices at 9.3%. At the global level, FTSE Russell’s ETP market share is greater, ranking up alongside S&P Dow Jones Indices and MSCI.

Any transaction would be subject to regulatory approval, LSE shareholder approval and Deutsche Boerse shareholders’ acceptance, as well as other customary conditions.

Shares in the LSE soared as much as 21% following the announcement, while shares in Deutsche Boerse rose 9%.

LSE and Deutsche Boerse expect to provide a further update in due course. Deutsche Boerse is required to respond to the LSE by 5pm on 22 March 2016.

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