LSE and Refinitiv make commitments on trading to secure EU approval for deal

The London Stock Exchange and Refinitiv have made commitments to Brussels antitrust authorities to keep trading and clearing of interest rate derivatives separate, according to documents seen by the Financial Times, in an effort to satisfy one of the regulator’s key concerns with their $27bn deal.

The formal offer was part of a package of measures the two sides submitted on Thursday and included the €4.3bn sale of Borsa Italiana to Euronext, which is intended to fend off another significant issue flagged by European regulators. 

Alongside commitments on behaviour, the LSE offered to strengthen governance and oversight, with the creation of an independent trustee and arbitration process to resolve complaints, the documents said.

The UK exchange is making its push as it seeks to convince authorities in the EU and Singapore to allow a new player at the heart of global capital markets. US authorities have already passed the deal.

Buying Refinitiv will triple the LSE’s revenues to £7bn and create a powerhouse controlling widely used services in share, bond and swaps trading as well as clearing, data and indices. It will be better able to compete with companies such as CME Group, Intercontinental Exchange, S&P Global and Bloomberg.

EU authorities have until mid-January to make a ruling. The deadline was pushed back by a month on Thursday to allow authorities to examine the LSE’s new commitments.

Cross-selling trading, and clearing, as well as data and analytics to each other’s customers is a key part of the deal for the LSE and Refinitiv.

Trading and clearing interest rate swaps has emerged as one of the EU’s top concerns that must be addressed before it approves the deal. The assets are widely used by companies to hedge against unexpected moves.

The EU flagged that the deal would create a combination with “significant market power” both in trading and clearing when setting its concerns out over the summer, adding that barriers to entry in the market were high and customers rarely switched services.

LCH has about 90 per cent of the market for clearing euro-denominated swaps while Tradeweb has about 50 per cent of the interest rate trading market, according to Greenwich Consulting. 

The issue of clearing euro-denominated interest rate swaps also became an unlikely flashpoint between the UK and EU after the Brexit vote, with the EU demanding more direct oversight of the business in London. 

To assuage the concerns, the LSE formally committed to allowing rivals and customers choice over the venues they trade swaps and the venue they use for clearing. 

Some other exchanges around the world confine trading and clearing in some widely traded products to their own exchanges, a model known as a “vertical silo”.

The LSE will “not co-ordinate its pricing with Tradeweb in a way that could result in indirect price discrimination between trading venues or middleware providers or otherwise based on a trade’s route to clearing”, the document said.

The LSE declined to comment.

The EU has also raised concerns that the tie-up between the LSE and Refinitiv could shut out rivals in providing access to critical trading information and data feeds. Regulators also have concerns that Refinitiv’s rivals that are licensing LSE data could receive a slower or more inferior service.

Last month David Schwimmer, chief executive of the LSE, said the potential sale of Borsa Italiana would “contribute significantly to addressing the EU’s competition concerns”.

The EU competition authorities declined to comment.

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