A TAKEOVER of the London Stock Exchange by either Deutsche Borse or Euronext would have to be scrutinised by competition authorities, leading City figures have warned.
Angela Knight, chief executive of the Association of Private Client Investment Managers and Stockbrokers, said: "Whether Deutsche Borse or Euronext ends up taking over the London Stock Exchange, the competition authorities will have to take a close look at it."
Knight, a former economic secretary to the Treasury, said it is up to the UK authorities - the Office of Fair Trading and the Competition Commission -to decide whether the proposed takeover deal should be referred to Brussels.
Her views were echoed by Justin Urquhart Stewart, director of Seven Investment Management. He said: "If the exchange is acquired by either bidder it would take us back to the situation we had before 'Big Bang' in 1986. Effectively, we'd be dealing with a cartel again.
"They would be inclined to fix prices [for share trading, clearing and settlement], simply because there's no-one else for them to compete against."
Urquhart Stewart made a call for a dedicated regulator to oversee the London exchange in the event of a takeover, to ensure such price-fixing does not occur.
"The FSA does not have the expertise to do that. It would have to be a new regulator partially made up of its users, " he said.
Knight believes it is inevitable that the LSE will lose its independence either to the German or French player.
Urquhart Stewart said: "It has become a takeover target largely because of the incompetence of senior management over the years."
Deutsche Borse made a pounds-1.3 billion pre-conditional offer for LSE on Thursday, which valued LSE shares at 530p each. The German company claimed the deal would immediately add to earnings, and promised cost cuts for users and a share buyback next year.
But the offer was swiftly kicked out by the LSE board.
By detailing its offer, subject to the pre-condition that the LSE board recommend it to shareholders, Borse had hoped to appease users and investors after weeks of disquiet.
But not raising its indicated offer above the current 530p per share level came across as a key failure to LSE shareholders. Urquhart Stewart said:
"That was little more than a kite-flying exercise."
Euronext, which already operates stock exchanges in Paris, Amsterdam, Brussels and Lisbon as well as the Liffe derivatives market in London, is now seen as the clear favourite.
On Thursday, it confirmed to the Office of Fair Trading its interest in making an offer.
Euronext argues that a merger with LSE would produce significant cost and revenue synergies and would benefit LSE shareholders and users.
Deutsche Borse suffers from a divided shareholder base, which is likely to make it difficult for its chief executive, Werner Seifert, to raise his offer much above the current level.
600 million (pounds-415m) cash pile and an emergency meeting to sack the supervisory board.
Sources believe it likely that Euronext will keep its powder dry until Deutsche Borse returns with a higher offer.
Earlier this month, Knight wrote to LSE chief executive Clara Furse demanding any deal should bring "evident and substantive cost reductions and efficiency gains for all users", and that "London should be maintained as the main centre of operations".
APCIMS member firms have under management and administration pounds-250bn and last year undertook 13 million trades in UK shares.
ian. fraser@sundayherald. com
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