By Foo Yun Chee and Jonathan Gould
BRUSSELS/FRANKFURT (Reuters) - EU antitrust regulators on Wednesday raised a raft of concerns over the proposed $28 billion (£21.56 billion) merger between Deutsche Boerse (DE:DB1Gn) and the London Stock Exchange (L:LSE), saying it could hinder competition in key financial market activities.
The European Commission said it would investigate over the next four months whether the deal would sharply reduce competition in clearing, derivatives and index licensing.
Deutsche Boerse and the London Stock Exchange, which had anticipated criticism of the deal, immediately said they would explore the sale of LCH SA, the French clearing subsidiary of the LSE's LCH.Clearnet group.
Their quick reaction contrasts with Deutsche Boerse's late-stage concessions in its effort five years ago to merge with the New York Stock Exchange, which the Commission vetoed.
The chief executive of rival pan-European exchange Euronext (PA:ENX) has said he would look at options for Clearnet if it comes up for sale.
France, Belgium, Portugal and the Netherlands - trading locations of Euronext - have expressed concerns about the combined company, which would have a huge presence in derivatives clearing.
The Commission cited concerns about reduced competition in clearing where the merged company would create the largest margin pool in the world, worth 150 billion euros ($168 billion), and in derivatives.
"Financial markets provide an essential function for the European economy. We must ensure that market participants continue to have access to financial market infrastructure on competitive terms," European Competition Commissioner Margrethe Vestager said in a statement.
Other areas of concern for the Commission include repo markets, German stocks, exchange traded funds (ETFs) and futures and options based on Italian shares.
The EU antitrust enforcer will rule on the proposed merger by Feb. 13, a deadline which would be extended once the companies submit concessions.
Industrial lobbying group European Investors Association last month warned of the dangers of a quasi-monopolistic stock market which could dictate listing fees and costs and harm competition.