The London Stock Exchange Group (LSEG) and Deutsche Börse have set out a summary of key terms which the parties have agreed in relation to the potential merger of the two firms to form a combined group which will be a UK holding company domiciled in London, following the announcement on February 23, 2016.

Under the terms of the 'potential merger' the new company will manage the licensing of the respective index provider firms within each party. Deutsche Borse's Stoxx features in over 140,000 structured products that are still live globally. Germany (110,777) has the highest number of products featuring Stoxx's underlyings, followed by Austria (76,988) and South Korea (15,420). The most active providers of products linked to Stoxx's indices are Deutsche Bank (20,816), followed by Societe Generale (14,269) and BNP Paribas (13,646).

The new firm will also manage a number of Dax indices which underlie over 900 live products including 457 in Germany, 155 in Austria, and 128 in Switzerland mostly marketed by Vontobel (63), Landesbank Berlin (47) and Deutsche Bank (34).

There are more than 10,000 live products featuring FTSE indices across jurisdictions with Germany/Austria (4813/4,517) taking the lion's share followed by the UK market. From a distribution perspective, Societe Generale(1,866) is the most active provider, followed by Deutsche Bank (1,640) and Unicredit (1,048).

Also, following the LSEG acquisition of Russell Investments on December 2014, the UK group manages all Russell indices which are deployed in more than 3,900 products across markets most of which were sold in the US market (3,711). Credit Suisse (843), JP Morgan (715), and Barclays (431) are the providers with the highest number of products under management linked to Russell indices.

In addition, the new group would seek a premium listing on the London Stock Exchange (LSE) and a prime standard listing on the Frankfurt Stock Exchange. It is envisaged that the combined group shares would be eligible for inclusion in the EuroStoxx, Dax and FTSE Russell index series.

Despite rumours that LSEG's chief Xavier Rolet would lead the new company on completion of the transaction, he will step down from his role with Donald Brydon, chairman of LSEG, becoming chairman of the combined group while Joachim Faber, chairman of Deutsche Börse, would become deputy chairman and senior independent director.

In addition, Carsten Kengeter (pictured), CEO of Deutsche Börse, would assume the role of CEO and executive director of the combined group while David Warren, CFO of LSEG, would become CFO and executive director. Kengeter joined Deutsche Borse in 2014 after six years as head of fixed income, currencies and commodities (FICC) at UBS where he was responsible for all fixed income products, including credit fixed income, rates, structured products, emerging markets and securitised products.

The merger is expected to achieve substantial cost synergies, principally from removing duplication of technology and operations across business lines, corporate services and support functions. The parties also believe there would be a 'significant opportunity' for revenue synergies through existing and new products and services, and an expanded global distribution network across the buy and sell side.

The combined group would have headquarters in London and Frankfurt, with distribution of corporate functions in both locations, and will also have unitary board with equal representation from LSEG and Deutsche Börse.

The merger is expected to bring 'significant customer benefits'. By connecting the London and Frankfurt cash exchanges, a liquidity bridge would be established, 'broadening customer access to more securities to the benefit of market participants in line with the evolving regulatory landscape'. Additionally, a portfolio margining service between listed and OTC derivative markets would provide cost of capital savings and margin relief, according to a joint statement released by both firms.

The combined group is seeking to build on its 'deep liquid' and 'transparent trading markets', as well as its clearing house solutions, and risk and balance sheet management capabilities (including collateral management functionalities) as well as comprehensive regulatory reporting solutions.

Donald Brydon, chairman of LSEG, said today in a statement that Rolet has offered to retire in order to ensure the successful creation of the new group, and that the potential merger would be structured as an all-share merger of with LSEG in London and Deutsche Börse in Frankfurt becoming intermediate subsidiaries of the combined group. The existing regulatory framework of all regulated entities within the combined group would remain unchanged, subject to customary and final regulatory approvals.

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