Notice pursuant to Article 19(3) of Council Regulation No 17(1)

Case COMP/37.557 - Eurex

(2000/C 231/02)

I. The notification

On 1 July 1999, Deutsche Börse AG (DB) and the SWX Swiss Exchange (SWX) (the Parties) notified to the Commission the creation of their joint venture "Eurex", a cross-border exchange for electronic trading in financial derivatives. The Parties have requested negative clearance or, failing that, exemption under Article 81(3) of the Treaty. This notice does not address the compatibility of the arrangements with Article 82.

II. The companies concerned

DB is the holding company of the Frankfurt Stock Exchange (/Frankfurter Wertpapierbörse). It offers a number of financial services such as listing of equity and debt securities, settlement facilities and the supply of information.

SWX is a non-profit association which runs the Swiss electronic securities exchange. It provides services similar to DB.

Eurex has replaced Deutsche Börse Terminmarkt GmbH (DTB) and the Swiss Options and Futures Exchanges (Soffex) and now trades the derivatives contracts that were previously traded on DTB and Soffex as well as new derivatives contracts.

III. The notified arrangements

Eurex consists of three legal entities: Eurex Zurich AG, Eurex Frankfurt AG, Eurex Clearing AG.

(a) Eurex Zurich is concerned with the Swiss derivatives operations and is jointly owned by SWX and DB;

(b) Eurex Frankfurt runs the German derivatives operations and is a fully owned subsidiary of Eurex Zurich;

(c) Eurex Clearing is responsible for the clearing operations of Eurex Zurich and Eurex Frankfurt and is a fully owned subsidiary of Eurex Frankfurt.

The same individuals make up the management and supervisory boards of Eurex Frankfurt and Zurich except that DB has an extra seat on the supervisory board of Eurex Zurich. Certain key decisions of each of the three entities require the unanimous agreement of its shareholders: these decisions relate to fundamental structural issues such as business organisation, the alteration of obligations agreed upon, or the establishment of branches and subsidiaries.

DB has granted to SWX an indefinite, non-exclusive licence for the use of its software and both parties will further develop the software and share revenue received from third parties.

The Parties have also agreed not to directly or indirectly provide services for derivatives products except for Eurex for the duration of the shareholders agreement. This non-compete clause will run for five years and be automatically extended for another five years unless terminated by either party subject to a notice period of one year.

IV. The relevant market

The Parties submit that Eurex is active in two areas:

(i) Standardised derivatives trading, including the development of new products; and

(ii) Standardised derivatives clearing.

(i) Derivatives trading

Eurex offers a facility for the trade in standardised derivatives (options and futures) that are based on either equity products, index products, money market products or capital market products.

The Parties submit that there are four distinct relevant product markets: derivatives based on (i) equities listed on DB, SWX or Helsinki Stock Exchange (HEX), (ii) equity indices based exclusively on DB, SWX or HEX listed shares, (iii) equity indices (not based exclusively on DB or SWX listed shares), or (iv) specific interest rates (eg. the "Bund future").

The Parties submit that, although theoretically other exchanges could switch to offering a trading facility in the same derivatives as Eurex, they are unlikely to do so because buyers and sellers of exchange-traded financial derivatives always trade where there is greatest liquidity in a given product. In the case of equity derivatives and equity index derivatives based on DB, SWX or HEX listed shares the liquidity is in most cases greatest on Eurex.

In contrast, the Parties consider that in the case of interest rate derivatives, other derivatives exchanges can compete with Eurex because they can more easily provide the requisite liquidity.

The Parties submit that, unlike exchange-traded derivaties, OTC (over the counter) derivatives are not standardised and therefore not appropriate for trading between a large group of buyers and sellers. However, OTC derivatives are flexible insruments that are often tailor made. For this reason the parties submit that OTC derivatives can nonetheless be regarded as substitutes for exchange-traded products.

The Parties consider that due to the differences in time zones, access to Eurex is restricted for those users whose operating hours fall outside those of Eurex. It is recognised that there is a small time overlap in which traders from other financial centres (New York, Tokyo, Hong Kong) can operate in Europe, this overlap is too small to provide a reasonable alternative. Therefore the Parties consider that the geographic market in question is limited to Europe.

(ii) Derivatives clearing

Eurex acts as a counterparty between the buyer and the seller and bears the risk of either of these parties reneging on their obligations. This service is only provided in relation to products traded on Eurex.

The Parties consider that although it would theoretically be possible for another undertaking to provide these clearing services, it seems unlikely that there would be another entrant on this market.

The Parties submit that clearing services are linked together with the type of derivative that is being cleared. They consider the relevant geographic markets for derivatives trading to be European-wide, consequently the geographic market for clearing services is limited to Europe.

V. Neighbouring relevant markets in which the parties are active

The Parties submit that the are active in certain markets that neighbour the markets in which Eurex is active. These are the market for listing and trading of securities (shares and debt instruments), the market for the listing and trading of warrants, the market for electronic exchange systems and the market for the sale of market information.

(i) Listing and trading services for securities

The Parties consider that geographic market for listing services to be worldwide for blue chip shares (including those listed on their exchanges) given that major international companies can seek to be listed on more than one major exchange. Exchanges around the world can easily provide such companies their listing services provided that the requisite legal requirements for each exchange are met. The Parties contend that companies with mainly national businesses seek listing only on national exchanges. In these circumstances the geographic market is national in scope. As far as German and Swiss government securities are concerned (on which a number of Eurex derivatives are based), the Parties consider the market for listing services to be national.

The Parties submit that the geographic market for trading services in blue chip shares (including those listed on their exchanges) is considered to be European. The Parties submit that the markets for trading services in the shares of companies with a mainly domestic business and which are listed only on one exchange (including those listed on their exchanges) are national. As far as trading services in German and Swiss government securities are concerned, the Parties consider these markets to be European-wide.

(ii) Listing and trading services for warrants

The Parties provide listing and trading facilities for warrants based on shares, a basket of shares or equity indices composed of shares listed at their exchanges, currencies or central bank interest rates. The Parties consider that although warrants may be similar to standardised options (depending on the underlying) they are not considered to be fully substitutable with derivatives. This is because, unlike options, warrants create rights of settlement against the issuer of the warrant as opposed to the seller. There is, however, a small degree of substitutability between standardised options and warrants based on the same underlying.

The Parties submit that, although theoretically other exchanges could switch to offering a listing and trading facility for those warrants handled by the Parties' exchanges, they will often not do so for reasons of liquidity in that product. As far as shares and equity indices are concerned, liquidity is normally found on the exchange where the underlying securities are listed. Therefore for blue chip securities which have multiple listings it is possible in principle for their warrants to be listed and traded at the exchanges where their securities are listed.

The Parties consider the market for warrants based on (indices of) blue chips, listed on the Parties' exchanges to be European-wide. This is mainly due to the differences in time zones around the world. As far as warrants based on domestic stocks are concerned, the Parties submit that the market is national.

(iii) Provision of electronic exchange systems

The Parties are either actually or potentially active as licensors of software for electronic exchange systems which allow fully automated exchange trading. The Parties submit that the relevant product market is for the provision of software for electronic exchange systems for derivatives. There are various products in the market which have been developed by a number of different companies which compete against one another.

The Parties submit that may of these systems can be used outside national borders, therefore they consider this market to be at least European-wide.

(iv) Sale of market information

The Parties are also active on the market for the sale of stock market information to third party vendors. DB is responsible for the sale of information from Eurex. The Parties sell real-time price information, delayed information, end-of-day information, and historical information.

The Parties submit that depending on the information content the product market for real-time, delayed and end-of-day information will either be European or national. The geographical scope of the historical information market will depend on the information's content.

VI. The Parties arguments concerning the inapplicability of Article 81(1)

The Parties submit that Eurex Zurich is a full function joint venture. It is jointly controlled by DB and SWX as the major strategic decisions have to be taken unanimously. Eurex Zurich has a management dedicated to its operations, the finance, staff, assets, licences and technology in order to conduct on a lasting basis its business activities. The Parties add that Eurex Zurich will operate independently on the market with the capabilities to develop its own products. However, the operation falls outside the scope of Council Regulation (EC) No 4064/89 on the control of concentrations between undertakings by reason of the fact that the Parties do not meet the relevant thresholds. Accordingly, they consider that in accordance with Article 22(1) of Council Regulation (EC) No 4064/89 the Commission's assessment of the joint venture should be limited to the possible risk of coordination of the competitive behaviour of the Parties, in this case in neighbouring markets.

In providing securities listing and trading services the Parties are active on a market which neighbours the markets on which Eurex is active, i.e. for derivatives trading services where the underlying consists of shares, indices or government securities.

Parties are not active in the same relevant markets as Eurex because the products they deal with are different in their structure and functions. The Parties deal only with shares and government securities that provide the underlying for certain types of derivatives, for example equity-based derivatives.

Despite the connections between the markets for listing and trading services for securities, on which the Parties operate, and the derivatives markt, on which Eurex operates, there are substantial differences between the two markets. The most sigificant difference is that Eurex has the capability to develop its own products unlike the Parties. The Parties can only provide services in products presented by third parties. The Parties are not able to influence the type of securities listed, nor can they prevent legally qualifying issuers from listing their securities. Furthermore, the Parties do not have an integrated clearing service which Eurex provides. The Parties function as a mediaton service between buyers and sellers of securities whereas Eurex functions as a party to the conracts. Finally, the Parties have also agreed in a shareholders' agreement the end of any direct or indirect provision of services for derivatives products except for Eurex for the duration of the shareholders agreement. This is designed to stop any competition between Eurex and the Parties. This will also have the effect of limiting the possibilities of coordination between them.

As far as listing and trading services for warrants are concerned, the possibility of coordination of the competitive behaviour of the Parties appears to be very small as the Parties have very little influence over the terms of these warrants.

There is no appreciable risk of coordination of the competitive behaviour of the Parties in the market for electronic exchange systems as there are many providers, and in the market for the sale of market information as the information provided by the Parties is very different in nature.

VII. Notice

The Commission intends to adopt a favorable position on the notified agreements. Before doing so, the Commission invites interested third parties to submit their comments within one month of the date of publication of this notice in the Official Journal of the European Communities. Comments can be sent by fax (32-2) 296 98 07 or by post, quoting the reference COMP/37.557/D-1, to: European Commission , Directorate-General for Competition (DG COMP),

Directorate D - Unit D1

Rue de la Loi/Wetstraat 200 , B - 1049 Brussels .

(1) OJ 13, 21.2.1962, p. 204/62.