Deutsche Boerse AG (DB1Gn.DE) and NYSE Euronext NYX.N received a document of more than 130 pages on Wednesday outlining the European Union's specific concerns over the German exchange's $9 billion deal to buy its U.S.-based counterpart.
The "statement of objections" from EU antitrust regulators, which was expected, sends the companies to the negotiating table where they may discuss concessions to seal their deal to create the world's largest exchange operator.
Deutsche Boerse and NYSE Euronext also could call off the deal if in the months ahead regulators demand what they see as too much. The process could last the rest of the year as brokers, funds and rival bourses descend on Brussels to argue for or against the plan.
The pair said receiving the formal objections was a normal step that "does not prejudge the final outcome" as antitrust regulators decide whether to allow or block the takeover.
The statement of objections specifies the EU's competition concerns. The companies can seek to allay regulators' worries by trying to persuade the commission that it is wrong, or offer remedies to fix the problems.
The specific objections were unclear. A source familiar with the paper document said it contains more than 130 pages.
When the EU opened the in-depth probe in August, it cited concerns about the deal's effect on derivatives and equities. The combined company would have a near monopoly on exchange-based futures trading in Europe once the Eurex and Liffe venues are brought together, and it would run share markets in several countries across the continent.
"It makes a lot of sense to object to the futures dominance because once an exchange has liquidity, and a clearinghouse, it's very hard to beat," said Andre Cappon, president of New York-based exchanges consultant CBM Group. "So the question is, what kind of conditions are necessary to allow the deal to stand?"
The Frankfurt exchange parent agreed in February to buy the New York Stock Exchange parent, and shareholders of the two companies backed the deal in July. It is the biggest and one of the few surviving planned exchange-industry deals this year.
The combination "provides substantial capital and cost savings to users; advances the goal of a unified, liquid EU capital market for raising money and managing risk; and does not materially alter the competitive landscape," the companies said in a statement.
However they may be asked to make concessions on fees, exclusive product licenses and allowing outside products to run through Deutsche Boerse's clearinghouse.
NYSE Euronext Chief Executive Duncan Niederauer, who would be CEO of the combined company, has said that selling major assets like Liffe would be unacceptable.
"It looks like we're heading toward some sort of conditional approval that includes remedies," said Jamie Selway, managing director of strategy at Investment Technology Group, and a board member at rival BATS Exchange. "But there are certain remedies that would be deal breakers."
(Reporting by Jonathan Spicer, editing by Gerald E. McCormick and Robert MacMillan)