UPDATE 1-Deutsche Boerse has lost appetite for Euronext takeover-sources

Wed Jan 9, 2013 12:52pm GMT

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* Euronext, operator of Paris, Brussels exchange on the block

* Boerse gives up plans for pan-European stock exchange

* Margin pressure on stocks diminish prospects of a deal

By Edward Taylor and Andreas Kröner

FRANKFURT, Jan 9 (Reuters) - Germany's Deutsche Boerse has lost its appetite for buying Euronext, the operator of the Paris stock exchange which is back on the block, three people familiar with the Frankfurt-based company's thinking told Reuters.

Deutsche Boerse is giving up on its decades-long dream of consolidating European stock exchanges because regulatory and technological changes have made it harder to earn big profits from stock trading, the sources said.

"The attractiveness of the shares trading business has massively diminished," a high ranking Deutsche Boerse manager, who declined to be named, told Reuters.

Deutsche Boerse declined to comment.

Euronext is being spun off from NYSE Euronext after rival IntercontinentalExchange (ICE) made a bid for the operator of the New York Stock Exchange.

ICE wants to combine its derivatives business with NYSE Euronext's derivatives exchange Liffe, the jewel in its crown. ICE said it will try to spin off Euronext, the share trading arm, leading to speculation that Deutsche Boerse might be interested.

Since 2003 Deutsche Boerse has made three attempts at combining with Euronext - which also runs the Amsterdam, Brussels and Lisbon stock exchanges. The final attempt at a takeover, made in 2011, was shot down by antitrust concerns over creating a dominant player in derivatives.

Deutsche Boerse's first attempts to join up with Euronext were made in 2003-4, and in 2006, before share trading came under pressure from the introduction of the European Union's markets in financial instruments directive (Mifid) in 2007.

Mifid removed an obligation to trade shares only on regulated exchanges, making it easier for non-exchange competitors like banks and alternative investment businesses to muscle in on Deutsche Boerse's market share.

In 2011 Deutsche Boerse made another attempt at joining up with NYSE Euronext, but this time because it wanted access to its derivatives market Liffe. The deal was blocked by European Union antitrust regulators.

Each time Deutsche Boerse attempted to join with Euronext, managers at both companies saw the greatest potential from combining Deutsche Boerse's Eurex derivatives platform with the London-based Liffe futures and options exchange.

Profits from share trading have come under pressure during the past decade after advances in information technology lowered the barriers to enter into the stocks trading business, which has spawned alternative platforms like Turquoise and Chi-X.

Share trading currently makes up only 10 percent of Deutsche Boerse's earnings before interest and taxes (EBIT).

By contrast, Europe's top futures markets have been able to see off competition because of the proprietary nature of the underlying futures contracts and the closed nature of the exchanges' futures clearing houses.

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