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Regulation leads to exchange regionalization: NYSE Euronext official

October 18, 2013

By Clare Hutchison and Leslie Gevirtz

LONDON (Reuters) – Diverging regulation of financial markets will lead to a regionalization of cash markets and make future consolidation between U.S. and European exchanges unlikely, the Executive Vice President of NYSE Euronext <NYX.N> said on Tuesday.

Speaking at the European Exchanges Summit in London, Roland Bellegarde said competing regulatory regimes put in place to overhaul markets after the financial crisis, like the U.S.’s Dodd-Frank and Europe’s EMIR (European Market Infrastructure Regulation), have made acquisitions between exchanges in different continents less attractive.

“There is not really a convergence of regulation and in merging if you don’t have a convergence of regulatory environments, what are the benefits expected? Users are not going to have a lot of synergies,” Bellegarde said.

A spate of consolidation between exchanges began in 2006, when the New York Stock Exchange and Euronext, home to the Paris, Brussels, Amsterdam and Lisbon exchanges merged. Deals between Nasdaq <NDAQ.O> and Nordic group OMX and the London Stock Exchange <LSE.L> and the Borsa Italiana followed as each institution tried to protect market share and trading volumes.

Bellegarde said those transactions coincided with a time when regulators prioritized boosting cross border flows, something the financial crisis changed.

“Regulators told us…the top priority is securing financial markets, making sure that everything works properly. Firstly on a domestic basis, secondly on a regional basis and then we’ll look back to your cross-region issues later.”

The latest deal, IntercontinentalExchange’s <ICE.N> more than $10 billion takeover of NYSE Euronext is expected to close early next month. ICE plans an initial public offering for the Euronext European equities business after it is finalized.

Sources earlier told Reuters regulators in the Netherlands and France are working on plans to prevent Euronext from falling into foreign hands, including encouraging their domestic institutions to take large stakes in the firm.

ICE will keep NYSE’s Liffe interest rate futures exchange, which Bellegarde says highlights a differing approach to derivatives, where globalization is still encouraged.

“There is definitely intent on derivatives to harmonize (regulatory environments) and make sure there is no arbitrage. I expect that this contrasting plan for cash and derivative becomes the new normal,” he said.

Global regulators have agreed new rules designed to make the opaque $630 trillion derivatives market safer, including introducing mandatory clearing and on-exchange trading of contracts where possible.

The European Union and the United States have pledged to cooperate over derivatives rules after initial spats.

(Corrects seventh paragraph to show regulators did not demand that ICE float Euronext)

(Editing by Leslie Gevirtz)