Introduction to Investigation
The European Commission has announced investigations against the German stock exchange Deutsche Börse and Nasdaq in the USA on suspicion of illegal derivatives trading practices. EU Commissioner responsible for enforcing competition rules said, “We are investigating whether Deutsche Börse and Nasdaq may have colluded to avoid competition over the listing, trading and clearing of certain financial derivatives.”
Background of the Investigation
This follows unannounced inspections by Commission investigators in September 2024 at the offices of Deutsche Börse and Nasdaq. The Commission is concerned that the two companies may have shared demand, coordinated prices and exchanged commercially sensitive information. If proven, this behavior could violate EU competition rules that prohibit cartels and restrictive business practices. However, the Commission stressed that launching an investigation does not necessarily mean a breach of the rules.
Understanding Derivatives
Derivatives are not stocks, but are often traded on stock markets and are often based on the value of stocks or other assets, such as foreign currency, food or oil. This is a financial contract between one or more parties whose value fluctuates depending on the price of one or more underlying assets. They allow traders and investors to hedge against risk, speculate on the future price of an asset, or take advantage of a position. Trading in derivatives is global and difficult to regulate because they are complex, can be traded over-the-counter rather than on stock exchanges, and are difficult to value accurately.
Companies Involved
According to the Commission, Deutsche Börse Group operates the largest futures exchange in the European Economic Area, which includes the 27 EU member states as well as Iceland, Liechtenstein and Norway. US-based global financial services and technology provider Nasdaq operates stock exchanges in the US and Europe.
Response from Deutsche Börse
A spokeswoman for Deutsche Börse said that while the German and U.S. exchanges cooperated on derivatives trading, the aim was to promote competition, not stifle it. The cooperation between Deutsche Börse and Nasdaq was part of a 1999 agreement that was discussed with the commission at the time. The collaboration was intended to promote competition, deepen liquidity in the respective Nordic derivatives markets, and achieve efficiency gains, offering clear advantages to market participants and was publicly known. The companies are working constructively with authorities in Brussels and the investigation is at an early stage.
