Britain’s Competition Commission has concluded that the proposed acquisition of London Stock Exchange plc by either Deutsche Börse AG or Euronext NV would substantially lessen competition.

The commission found that the removal of the Deutsche Börse or Euronext alone, as a result of either merger, would not be expected to result in a substantial lessening of competition in the provision of trading services because of the competition provided by other exchanges in Europe and the USA.

However, it also found that either merger would make it more difficult for other exchanges to compete with the LSE in trading UK equities because of both bidders’ ownership or control over the future provision of clearing services to the exchange. Any exchange attempting to compete with the LSE and win the business of trading firms on the LSE would require access to the LSE’s clearing services provider.

In the case of the Deutsche Börse, the commission believes that it is likely that it would introduce its own clearing services provider, Eurex Clearing AG, as the LSE’s provider of clearing services. The merged entity would then make it difficult for potential competitors to gain access to Eurex Clearing AG’s services, and hence potential competitors would be less able to compete at the trading services level.

Euronext has the largest shareholding in the LSE’s current clearing services provider, LCH.Clearnet. It also has representation at board level, and provides a substantial share of LCH.Clearnet’s total fee income. Following a merger, despite the governance arrangements currently in place for LCH.Clearnet, Euronext/LSE would have the ability and incentive to make it difficult for potential competitors to gain access to LCH.Clearnet’s services, and hence potential competitors would be less able to compete at the trading services level.

In response, Euronext says it will continue to work closely with the CC and other relevant market constituencies to address the issues raised.

The Deutsche Börse welcomed the provisional findings, adding that it sees itself in a favourable position with regard to potential remedies suggested by the commission, since it does not provide clearing services for the London market. “Therefore, a discontinuation of clearing activities in general is not an issue for Deutsche Börse,” it says.

The commission will now start discussions with interested parties concerning actions that could be taken to remove the anti-competitive effects of the proposed mergers. The full provisional findings report will be published next week. Interested parties are also able to comment on the provisional conclusions before the commission publishes its final report.

The commission now invites responses from the main parties and other interested parties on possible remedies by August 18 and the provisional findings by August 19.