The European Commission has announced an investigation into German stock market giant Deutsche Börse and Nasdaq in the US on suspicion of illegal derivatives trading practices.
“We are investigating whether Deutsche Börse and Nasdaq may have colluded to avoid competition in the listing, trading and clearing of certain financial derivatives,” Teresa Ribera, the European commissioner responsible for enforcing competition rules, said on Thursday.
This follows unannounced inspections by Commission investigators at Deutsche Börse and Nasdaq offices in September 2024.
The Commission also said in a press release that it was concerned that the two companies may have allocated demand, coordinated prices and exchanged commercially sensitive information.
“If proven, this behavior could violate EU competition rules that prohibit cartels and restrictive business practices,” the Commission said. Although it is also stressful that the initiation of investigation does not mean that rules have been broken.
What are derivatives?
Derivatives are not shares, but are often traded through stock exchanges and are often based on the values of shares or other assets, such as foreign exchange or food or oil.
They are a financial contract between one or more parties whose value fluctuates depending on the price of the underlying asset or assets. They allow traders and investors to hedge risk, speculate on the future price of an asset (for example, betting on a stock price expected to fall or rise over a certain time period) or leverage a position.
Trading in derivatives is global and difficult to regulate due to its complexity, because they can also be traded over the counter rather than using stock markets, and because of the difficulty in valuing them accurately.
According to Commission information, Deutsche Börse Group operates the largest derivatives exchange in the European Economic Area, which includes the 27 EU member states as well as Iceland, Liechtenstein and Norway.
Nasdaq, a US-based global financial services and technology provider, operates stock exchanges in the US and Europe.
Deutsche Börse spokesperson says the aim of the cooperation was to promote competition
The Reuters news agency quoted a spokesman for Deutsche Börse as saying that the company and its derivatives exchange subsidiary Eurex, the largest of its kind in Germany, had taken note of the European Commission’s announcement of the investigation.
He said the companies were working constructively with authorities in Brussels and that the investigation was in the early stages. He said the cooperation between Deutsche Börse and Nasdaq was part of an agreement reached in 1999 and was discussed with the Commission at that time.
“The cooperation should promote competition. It was specifically aimed at deepening liquidity and generating efficient profits in the respective Nordic derivatives markets. It offered clear benefits for market participants and was publicly known,” he told Reuters.
Edited by: Zack Crellin