The London Stock Exchange and Deutsche Börse have said their merger will go through even if the British public vote to exit the EU. However, a Brexit would jeopardize the creation of a single European capital market.
Europe's two leading bourses have set up a committee to advise on the implications of the UK's June 23 "Brexit" vote, but said their politically sensitive merger proposal would prosper regardless.
"(It) would be well positioned to serve global customers irrespective of the outcome of the vote...the outcome of the referendum would not be a condition of the potential merger," they said in a statement. However, they warned a vote by Britons to leave the European Union would put the EU's Capital Markets Union project at risk.
A London-Frankfurt deal would combine the LSE's share-trading operation with the derivatives trading of Deutsche Börse's Eurex into a group worth almost $30 billion (27.21 billion euros). It would propel the companies to a similar scale as US exchange ICE, which has taken a huge slice of the European derivatives markets.
If Britons were to vote to leave the EU, then even if trading volumes in stocks and other instruments moved out of London, the likely beneficiary would be Frankfurt, giving a combination of the two financial exchanges an effective hedge.
Tuesday's friendly deal between LSE and Deutsche Börse follows two previous attempts to join forces in the past 16 years, both of which failed. Both are confident this time is different.
The proposal is effectively a takeover of the LSE by its German rival at a time when Britain is concerned about a loss of influence to the continent if it leaves the EU.
Peter Thorne, analyst at Edison Investment Research, agreed a Brexit vote was unlikely to impact the deal as the financial infrastructure business and regulation are increasingly global.
"But Brexit is a political process, so financial logic may not be the only concern. The referendum committee seems a necessary precaution," he said.
A source familiar with the deal said it had been structured to support LSE in the event that a "Brexit" triggered a move by the European Central Bank to prevent euro-denominated products like bonds being cleared outside the euro zone. This would hit the business of LSE's subsidiary LCH.Clearnet.
Getting a deal done is a political tight-rope walk, with one major sensitivity being the issue of where the combined exchange would be based, and who would lead it.
German CEO, English headquarters
On Friday, the exchanges confirmed the LSE's long-standing Chief Executive Xavier Rolet would step down in favor of Deutsche Börse CEO Carsten Kengeter. While the new group's main domicile would be in Britain, the combined group would be listed on both the London and Frankfurt stock exchanges. The combined group shares are also likely to be listed in the blue-chip stock indices, EuroStoxx, DAX and FTSE.
It was too early to say what the impact on Frankfurt as a financial centre might turn out to be, as negotiations between the firms are ongoing, a spokesman for Frankfurt mayor Peter Feldmann told Reuters. He said Kengeter had informed him of the deal at the start of the week.
tko/ nz (afp, rtr)