LSE-Refinitiv merger under competition spotlight from EC investigators

Written by Alex Hamilton
24th June 2020

The European Commission (EC) has opened an investigation into the acquisition of Refinitiv by the London Stock Exchange Group (LSE).

LSE and Refinitiv are in talks over a $27bn merger

The EC has concerns that the proposed acquisition could reduce competition in trading and clearing of various financial instruments and in financial data products.

Talks between LSE and Refinitiv began in 2019, with a potential $27 billion deal making headlines in July of that year.

LSE is planning to fund the acquisition with new shares used as currency. Refinitiv’s existing investors will become LSE shareholders and own about 37% of the combined company.

Thomson Reuters owns a 45% stake in Refinitiv and has confirmed it will own a 15% stake in LSE if the deal goes through.

The EC has several concerns about the results of a merger. A combination would bring together major trading venues where electronic trading of bonds of the European Economic Area (EEA), UK, and Swiss governments takes place.

The regulator argues this would result in a very large combined market share in the electronic trading of European Government Bonds.

LSE would also have a significant market share in the trading of trading and clearing in over-the-counter interest-rate derivatives (OTC IRDs). OTC IRDs are the largest category of derivatives globally.

Refinitiv’s role as a major datafeed provider is also highlighted by the EC. It argues that as there exists no alternative to the data supplied by LSE on the market, and that competitors may be shut out from that data following the merger’s completion.

“Financial markets provide an essential function for the European economy,” says European Commission executive vice president, Margrethe Vestager, responsible for competition policy.

“Access to financial market infrastructure and financial data products is needed to make investment decisions, trade, and to protect savings.

“We have opened an in-depth investigation to assess whether the proposed transaction which will combine the activities of LSE and Refinitiv would negatively affect competition in these markets.”