What's going on?

After agreeing to merge with each other last year, it now looks like a deal between the London Stock Exchange (LSE) and Deutsche B�rse (the main exchange in Germany) could fall apart. (tweet this)

What does this mean?

The �29 billion merger would create the biggest exchange in Europe. But the European Commission (the European Union�s executive arm) recently told the LSE it would have to sell an important Italian exchange that it owns. Otherwise, in the Commission�s view, the combined company would control too much of the market for trading.


Late on Sunday night, the LSE essentially said it wouldn�t sell its Italian subsidiary. We�ll have to wait until the end of the month for the Commission�s response, so it�s not game over yet, but it�s looking quite likely that this roadblock will kill the deal.

Why should I care?

The bigger picture: Life is probably going to get harder for British companies operating in Europe.

LSE and Deutsche B�rse initially agreed to merge before Britain voted to leave the European Union. Brexit has made the move more politically unpopular (e.g. some Europeans don�t want the headquarters of their main exchange to be in London). The Commission only recently added this new condition about the Italian exchange, suggesting that political forces have scuppered the deal. If so, it could be a sign of the increased friction that British companies operating in Europe may encounter post-Brexit.


For the stocks: For LSE and Deutsche B�rse, size matters.

Stock prices of both companies sold off 3-4% once they opened for trading on Monday. That�s partly because exchanges do best as they increase in size (i.e. achieve more scale): since they charge traders relatively low fees for making trades, they need to capture a lot of trading in order to generate a substantial profit. LSE�s share price recovered later in the day, likely because investors realized that another bidder (possibly ICE, the owner of the New York Stock Exchange) might swoop in if the deal does collapse.