The European Commission will not include over-the-counter derivatives in its review of Deutsche Boerse's planned takeover of NYSE Euronext, three people familiar with the matter said on Monday.

The decision could make getting the merger approved more difficult as defining the market narrowly is likely to show that the combined company will be a dominant force in derivatives.

Deutsche Boerse owns electronic derivatives exchange Eurex, while NYSE Euronext operates the Liffe derivatives exchange. Both parties have said the combination of their platforms would not significantly harm competition in the derivatives markets, given the majority of derivatives were not traded via an exchange but as part of the over-the-counter (OTC) market.

Two sources familiar with Deutsche Boerse's thinking said the European Union's antitrust body signaled it would only look at the market for derivatives traded on an exchange when it assessed the impact of the tie-up.

A person familiar with the European Commission's thinking said it had defined the relevant product market as exchange-listed derivatives and not the OTC market.

At this stage, the parties' definition of the derivatives market is quite different from what the Commission thinks it is, said a source with direct knowledge of the matter. The source declined to be named because of the sensitivity of the matter.

The Commission has provisionally made up its mind (on the product definition), the source said.

NYSE Euronext declined to comment. A spokeswoman for EU Competition Commissioner Joaquin Almunia also declined to comment.

Deutsche Boerse agreed to acquire the Big Board parent in February. Worth $9 billion, the deal is expected to close by year end.

To counter arguments that a combined company would have a stranglehold on exchange-based futures trading in Europe, Deutsche Boerse and NYSE Euronext have argued that Liffe and Eurex offer different interest rate futures products and thus do not compete much.

The pair, which together would be the world's largest exchange operator, also argue that they compete with off-exchange markets.

Analysts said the move could have negative implications for a deal.

This is a potential blow for the merger, said Simmy Grewal, an analyst at Aite group. I struggle to see how the Commission can let this go through and create a huge monopolistic exchange in futures when they have spent the last five years promoting competition in equities.

The takeover of NYSE Euronext, announced in February, capped a wave of bourse merger plans globally. Most other bids -- including those from LSE, Singapore Exchange Ltd, and Nasdaq OMX Group -- have since failed.

Earlier this month, Deutsche Boerse and NYSE Euronext said they received from European Union antitrust regulators a formal statement of objections against their merger.

Deutsche Boerse will now review whether the concerns can be addressed. On Monday, it said it and the European Commission were at the beginning of an intense dialogue about the merits of a deal.

(Additional reporting by Jonathan Spicer in New York and Luke Jeffs in London; Editing by Dan Lalor, Hans-Juergen Peters and Martin Howell)

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