Germany says EU base may be required for LSE, Deutsche Boerse

[BERLIN] Deutsche Boerse AG and London Stock Exchange Group Plc must place their joint headquarters in a European Union country if post-Brexit Britain fails to secure passporting for financial services, said German Deputy Finance Minister Michael Meister.

"A stock exchange that engages in securities business has to be supervised where it conducts its business," Mr Meister said in an interview. "Under the premise that there is no passporting, the headquarters of financial services providers must be in the EU if they want to continue to profit from the single market."

Even before the UK's Brexit vote, the combined companies' plan for a London headquarters had been a sticking point for German politicians. Both LSE and Deutsche Boerse have maintained that the terms of the US$12 billion deal are binding and remain unchanged.

People familiar with the matter told Bloomberg in July that management of both exchanges understand the need to find a compromise on the new holding company's location.

Passporting - the right of companies authorised in one country of the European Economic Area to sell their products and services throughout the bloc - allows access to a US$19 trillion integrated economy with more than 500 million citizens. Firms are under pressure to prepare for a worst-case scenario that would shut UK-based financial services companies out of the single market, and banks can't afford to wait until as late as 2019 before they start shifting operations, Mr Meister said in an interview on Monday.

UK Prime Minister Theresa May has said she'll start pulling the UK out of the EU no later than the end of March next year, meaning the two years of Brexit negotiations should be completed in 2019.

Representatives at Deutsche Boerse and LSE declined to comment.

Thomas Steffen, another German deputy finance minister, said this week that the ministry has been increasingly receiving inquiries from firms wanting to relocate headquarters or business to Germany, and that he expects "concrete decisions" in the spring.

Frankfurt, where the European Central Bank oversees the region's biggest lenders, is well-placed to host banks, he said at a banking conference in Frankfurt.

"The supervisor must be able to do something if a financial services company doesn't adhere to the rules," Mr Meister said. "It must be able to enforce the rules, and it can only do so on its sovereign territory."

BLOOMBERG