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. Last Updated: 07/27/2016

Borse Votes for London Merger




LONDON -- The Deutsche B?rse's overwhelming and unconditional thumbs up for its merger with the London Stock Exchange to create the world's third biggest bourse is a big step forward, but leaves key issues remarkably unresolved for a marriage two years in the making.


"It's one significant step, but there are still a lot of hurdles to overcome," said Benn Steil of New York's Council on Foreign Relations, and an expert on European stock exchanges.


Deutsche B?rse supervisory board chairman Rolf Breuer said 17 of the board's 21 members voted Tuesday in favor of the merger and four abstained, a larger majority than expected.


Shareholders of both exchanges still need to give the green light, due by fall.


The merger is part of Europe's rapidly consolidating securities industry landscape as investors demand easier pan-European trading made cheaper by advances in technology, which has spawned several electronic upstarts. Pressure on bourses to act is mounting.


On Tuesday, British electronic stock exchange Tradepoint, which launches a pan-European blue-chip platform July 10, said it was in partnership talks with the Swiss stock exchange.


The B?rse board also backed the division of responsibilities between London and Frankfurt, the former trading blue chips under British regulation, the latter growth stocks under German regulation.


This addressed German fears that the pan-European growth market, an alliance with the U.S. Nasdaq, would eventually move to London.


The question of currencies, which has vexed some of London's financial community, was also addressed: Stocks would trade in different currencies but each issuer would have to choose which single currency its stock would trade in.


But the whole issue of clearing and settlement - a key area for slashing cross-border trading costs - remains murky. With Frankfurt delivering on its side of the bargain so far, the pressure is now on London to do likewise.


"We welcome the positive result and look forward to working with the Deutsche B?rse on the iX International Exchanges project," said a spokesman for the London Stock Exchange.


Although German protests about iX have been fueled by the need to improve bargaining clout, there was never any serious doubt B?rse could deliver, and the key market players on the supervisory board clearly did so at the end of the day.


"What the supervisory board vote says is that the market, that is the dominant participants, are voting for it," said Ruben Lee, director of the Oxford Finance Group and stock exchange specialist.


The London's exchange shareholder structure is much more diverse and a 75 percent majority of its 298 shareholders is needed to pass the deal. British private retail brokers represent about a third of LSE shareholders, and they want more details - anticipated in an LSE memo in July - before giving their final verdict in a vote by iX's planned merger completion deadline in the fall.


The supervisory board's reference to currencies could ease some of the deep-rooted concerns felt by many domestic-focused British brokers who fear a forced, backdoor entry into the euro.


"As long as U.K. companies trade in pounds, that will be important for the swing constituency in the London exchange shareholders, the private retail brokers," said Nic Stuchfield, a stock market industry consultant.


"Even with the current German agreement, this deal is by no means completed, and there are unsustainable elements that could be worked out, but political difficulties mean that I don't think they will be," Lee said.


For instance, it was illogical to claim that getting rid of two markets would create economies of scale by creating two new ones, the blue chips in London and growth stocks in Frankfurt, Lee said.