UNCLAS THE HAGUE 002275

SIPDIS

SIPDIS

SENSITIVE

STATE FOR EUR/UBI (RREITER)
USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT
TREASURY FOR IMI/OASIA/VATUKORALA
PARIS ALSO FOR OECD
STATE PLEASE PASS FEDERAL RESERVE
USEU FOR JENNIFER UNDERWOOD

E.O. 12356: N/A
TAGS: EFIN ECON EINV ELAB NL
SUBJECT: DUTCH COULD BLOCK NYSE/EURONEXT MERGER

REF: A) THE HAGUE 1391 B) THE HAGUE 1726 C) THE HAGUE 1864

THIS CABLE CONTAINS PROPRIETARY INFORMATION. IT IS SENSITIVE
BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY.


1. (SBU) SUMMARY. Concerns about the proposed
NYSE/Euronext legal corporate structure could lead the Dutch
Finance Ministry to block the announced merger if these
issues are not addressed. Finance Minister Zalm will raise
these concerns with visiting NYSE CEO Thain next week, and
his ministry will continue to seek high-level U.S.
consultations on the matter. END SUMMARY.

NEW CONCERNS OVER MERGER
--------------


2. (SBU) Despite public assurances from the Securities and
Exchange Commission that a NYSE/Euronext merger would not
oblige Euronext-listed companies to comply with U.S.
securities regulations, Dutch politicians, regulators, and
investors remain concerned about how national rules would
apply across borders and whether U.S. companies could evade
U.S. regulations under such an arrangement. Until recently,
the Ministry of Finance (MOF) was confident that such
controversial regulatory matters could be resolved before
shareholders vote on the proposed merger in mid-December.
(See reftels for further background reporting.) Last week,
MOF officials told Econoff that the proposed NYSE/Euronext
corporate legal structure offers inadequate protection
against the potential cross-border application of U.S.
regulations. These officials expect the European taskforce
of regulators, which is tasked with assessing this proposed
structure, to present similar conclusions within the next
few days. A negative assessment would result in a MOF
decision to block the merger.


3. (SBU) MOF officials also indicated that several
traditional Euronext shareholders have sold their stake in
the exchange over the past few months, and the company is
now, to a large degree, owned by hedge funds. It remains to
be seen, they said, how these shareholders will vote on the
merger at the special December shareholders' meeting.
Moreover, the future management structure within a
NYSE/Euronext merger is still unclear, a cause for further
concern given regulatory framework implications.


4. (SBU) In a phone call with Econoff this week, a senior
Euronext legal advisor also expressed concern about
NYSE/Euronext's future management structure, noting problems
in convincing the NYSE to allow a formal strengthening of
national-level management to appease European issuers and
regulators. In contrast to MOF views, however, this contact
was confident that the proposed corporate structure was
solid enough to shield the merged company from future U.S.
regulatory spill-over.

DUTCH CONTINUE TO SEEK CONSULTATIONS
--------------


5. (SBU) Meanwhile, the MOF continues to seek
consultations with the U.S. Congress, Treasury, and others
in the event that concerns about the proposed NYSE/Euronext
corporate legal structure are addressed and the merger goes
forward. Finance Minister Zalm will also raise these issues
with NYSE CEO John Thain when he visits the Netherlands
October 24.

ARNALL