Merger Plans

Deutsche Börse Chief Denies Insider Trading

  • Why it matters

    Why it matters

    Doubts are growing about the planned merger of Deutsche Börse and LSE, following Britain’s vote to leave the European Union and with the head of Deutsche Börse being investigated owing to suspected insider trading.

  • Facts


    • The head office for the merged group is to be located in London, a plan that is facing growing resistance from the German state of Hesse, where Deutsche Börse is based.
    • Carsten Kengeter is being investigated for insider trading over shares he bought in Deutsche Börse in December 2015, two months before the merger plans were announced.
    • Deutsche Börse recorded net revenue of around €2.4 billion ($2.56 billion) in 2016, up 8 percent year on year.
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Bilanz-Pk Deutsche Börse
Carsten Kengeter is facing tough questions over his alleged involvement in insider trading. Source: DPA

Carsten Kengeter, chief executive of Deutsche Börse, defended himself against accusations of insider trading during the stock exchange’s results presentation Thursday, as he was grilled about shares he had bought two months before the company announced plans to merge with the London Stock Exchange.

He has since been investigated by the public prosecutor’s office over suspected insider trading.

“As you all know, the public prosecutor’s office of Frankfurt is investigating initial suspicions of insider trading,” he said. He then emphasized: “Insider trading goes against everything I stand for.” He went on to evade a number of questions from journalists, including questions about his possible resignation.

Deutsche Börse (project name “Delta”) and the LSE (project name “Luna”) are hoping to merge to form the world’s largest stock exchange operator by turnover. Mr. Kengeter had initially described the deal as “the will of God.” It’s almost as if his comment incurred the wrath of the gods: first Britain voted to leave the European Union, then a study of the benefits to Frankfurt as a financial center angered its London-based partner, and finally the public prosecutor’s office began its investigations.

Pressure is growing on Mr. Kengeter, and many investors are doubtful about whether the deal will be a success.

Klaus Nieding, vice president of Deutsche Schutzvereinigung für Wertpapierbesitz, or DSW, Germany’s largest shareholders’ association, described the investigations as a “PR disaster.” Although he believes Mr. Kengeter must be presumed to be innocent, he said: “No chief executive should be suspected of insider trading, and Deutsche Börse in particular should have been much more careful about this.” He pointed out that the company’s core business is ensuring that stock trading takes place in accordance with the regulations.

“The head office must be in the European Union, ideally in Frankfurt.”

Klaus Nieding, DSW shareholder association

Mr. Kengeter bought the shares in Deutsche Börse in Deecember 2015 as part of a remuneration program that the supervisory board had set up specifically for the chief executive. The purchases entitle him to further securities whose value is linked to business performance, although he cannot receive these before 2019. Mr. Kengeter declined to comment on the stock purchases, pointing out that investigations were still ongoing. “I’d like to talk about it, but that’s not possible.”

The operator of the Frankfurt stock exchange presented positive annual figures at the press conference. Net revenue grew by 8 percent to around €2.4 billion ($2.56 billion) in 2016, while net profit came to €722 million. Shareholders will also benefit, as the company plans to increase its dividend.

Most shareholders are firmly convinced that the merger is worthwhile. “We need a strong stock exchange in Europe,” one fund manager said, adding that without the deal, Deutsche Börse will eventually fall behind. Mr. Kengeter, who is to run the merged company, has also warned about this.

London will be the location for the holding company of the merged group, a plan that has attracted growing resistance in the German state of Hesse, where Frankfurt is located. Thomas Schäfer, finance minister of Hesse, called in an interview with Reuters at the beginning of February for the merged company to have its head office in Frankfurt. Given Britain’s plans to leave the European Union, he said, the reasons why it should be headquartered in Frankfurt were “crystal clear.”

Mr. Schäfer’s words have provoked unease among investors and fueled doubts about whether the merger will go ahead. “It shouldn’t really be about political sensitivities here, but about how we can best fulfill customers’ needs,” a London-based fund manager said. He explained that was why he had voted for the deal and that he was still convinced that it made sense. “But if Hesse continues to resist, it will lead to a stalemate, which possibly only the highest level of government will be able to resolve,” he said. “Because the merger partners can’t actually change the location of the holding company from London without provoking opposition from Downing Street or the British supervisory authorities.”

Mr. Nieding also sees the holding company’s location as the biggest flaw in the merger plans. “The head office must be in the European Union, ideally in Frankfurt. If that isn’t possible, we need to ask whether we really want the merger.” He rejected Mr. Kengeter’s warning that Deutsche Börse could decline in importance, saying that this argument had been repeated for almost 17 years since a tie-up between the two stock exchanges was first discussed, and that the horror scenarios described had so far not materialized.

Brexit is already threatening London as a financial center. Up to 75,000 jobs could be lost in Britain, depending on the outcome of negotiations with Brussels. “If the LSE and Deutsche Börse change the location of the holding company because of this mood, British politicians will go to the barricades,” advisors have said. It is thought that talks may then be required between British Prime Minister Theresa May and German Chancellor Angela Merkel in order to rescue the deal.

The investigations concerning Mr. Kengeter have not made things any easier. “The latest developments have not increased the probability of a merger,” one fund manager said. Another major shareholder is more pragmatic. Although he fully expects the allegations to be proved untrue, he believes it won’t be the end of the world if this is not the case. “The merger can go ahead without Carsten Kengeter,” he said.

Mr. Nieding has questioned why the issue of the stock purchases has come to light now, with the European Commission soon to decide whether to approve the merger. “It may well be that there are interested parties who want to torpedo the merger,” he said.


Michael Brächer is a financial editor in the investment team in Frankfurt. Katharina Slodczyk is Handelsblatt’s London correspondent. To contact the authors: and

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