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UK wants no "interference" in megabourse ruling

An expert works at her screens in the NYSE Euronext cash market operations room in Paris
An expert works at her screens in the NYSE Euronext cash market operations room in Paris

By Huw Jones

LONDON (Reuters) - Britain urged European Union competition officials on Wednesday to reject "political interference" and "vested interests" when ruling on plans to create the world's biggest exchange operator.

EU officials have signaled they will recommend blocking Deutsche Boerse's $9 billion takeover of trans-Atlantic rival NYSE Euronext because it would account for more than 90 percent of European listed derivatives trading and a large chunk of clearing.

The two exchanges are mounting last-minute efforts to rescue the merger and Britain has made no secret of its wish to promote open markets and competition in financial areas like clearing.

The European Commission' 27 commissioners are expected to rule on the merger on February 1 and UK Financial Services Minister Mark Hoban urged them to avoid being swayed by political arguments.

"In a post-crisis market where we have seen extensive consolidation across the board, we cannot afford to sit back and sacrifice competition and customer welfare," he told a financial audience at the London Stock Exchange , a top rival to the planned megabourse.

The EU competition directorate general has a fierce reputation for objective and rigorous analysis, and a record of promoting the bloc's single market objectives, he said.

"It is vital that DG Competition lives up to those duties in the weeks and months to come, without political interference," Hoban said.

"I fully understand nonetheless that the Commission faces a huge challenge to resist pressure to delay, obfuscate and pander to vested interests in the EU," Hoban added.

The bloc's national competition regulators backed the proposed EU veto on Tuesday, a source told Reuters.

Brussels faces some pressure to allow a merged "European champion" that could compete globally with giants like Chicago Mercantile Exchange parent CME Group Inc .

EU antitrust chief Joaquin Almunia said on Tuesday evening that competition between exchanges and in clearing was needed to ensure efficient markets for users.

Deutsche Boerse Chief Executive Reto Francioni said on Wednesday the merger would bring EU and U.S. regulators together to improve global policy coordination and that more industry consolidation was inevitable.

In a January 17 notice, the U.S. Securities and Exchange Commission approved the combination, as expected, though all eyes are on European regulators.

MIFID WATCH

Britain, the EU's biggest financial centre, is taking a more confrontational stance to stop Brussels damaging its financial sector, which generates 12 percent of UK tax revenues.

Last month UK Prime Minister David Cameron vetoed plans for a new EU treaty for all 27 member states to help resolve the euro zone debt crisis because of concerns over how it would affect the single market and Britain's financial services.

Hoban said following the veto he was struck by the number of people and governments like Italy's reaching out to back Britain's agenda of growth and preserving the single market.

"There is a willingness to work and to listen to the concerns the UK has," Hoban said.

He echoed Cameron's rejection of a Europe-only tax on financial transactions.

Britain is keen to ensure competition in clearing of securities and has won commitments in a new EU derivatives law to ensure choice in clearing off-exchange traded contracts.

It is now pushing to keep similar provisions in a sweeping update of EU securities markets, known as the markets in financial instruments directive or MiFID II.

MiFID II aims to curb ultra fast high-frequency trading and rein in commodities trading using position limits, which the United States has already adopted to stop price-influencing positions being built up in areas like food.

"It is incorrect to think that blanket limits will enable governments to control prices as some would seem to suggest," Hoban said.

Reform of MiFID has to be driven by evidence and not political whim, he said, adding that imposing the share trading model used in the current MiFID rules on bonds and derivative may be inappropriate in more thinly traded markets.

Britain will build alliances with other countries to make changes to MiFID, helped by stressing what end users want in areas like commodities, Hoban said.

Hoban also expressed concern that MiFID will block access to EU financial markets for institutions from outside the bloc until they can show their home regulation is equally tough.

"We gain nothing by browbeating emerging economies and their most successful firms and sovereign wealth funds with additional and unnecessary burdens," Hoban said.

(Reporting by Huw Jones; Additional reporting by Jonathan Spicer in New York; Editing by Jon Loades-Carter, Helen Massy-Beresford and Steve Orlofsky)

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