It follows the decision last week by the New York Stock Exchange to go public, although the LSE insisted it has no current plans for flotation.
Ownership of LSE shares, currently in the hands of 294 securities firms, will be able to be transferred under the scheme, which was unanimously approved by the 14-member board last night. The proposals now have to go to an extraordinary meeting of the exchange's current members.
Gavin Casey, the LSE chief executive, said last night the changes will allow the Exchange to shed the bureaucratic decision-making structure that is preventing it from responding with sufficient speed to developments in the market place.
He said: "For London to stay ahead demands greater speed and flexibility than ever before. To compete on equal terms in today's market our decision- making processes must be geared to rapid response, both to customer demand and changing economic conditions. The new structure will achieve this."
Mr Casey said the changes could pave the way for the exchange to give up its responsibility for vetting new listings and make it easier to pursue its plan to join an alliance with other European exchanges.
The move comes against a background of growing City discontent with its service from the Exchange. More evidence came yesterday with the news that 19 leading City institutions have signed up to a new venture launched by Barclays Global Investors and Mercury Asset Management to bypass conventional exchanges and slash the cost of dealing in UK and continental European shares by as much as 80 per cent. They include Phillips & Drew, Prudential, Foreign & Colonial and Gartmore
Their company, E-Crossnet, aims to handle shares worth up to pounds 30bn a year in three years - equal to 2 per cent of today's volume on the London exchange.
The aim is to have the venture up and running in the first quarter of next year. Barclays and MAM are putting up pounds 10m each to get the venture of the ground. They will initially take 50 per cent each of the venture but users will be entitled to take stakes later.
The venture is modelled on existing bilateral crossing arrangements between big fund managers allowing them to swap stakes in companies at middle market prices without market-maker and broking fees.
These account for 1 per cent of total share dealings in the UK, although US volumes are much greater. By opening these to all comers and providing a fully automated match bargain system, BGI and MAM hope to provide the liquidity and anonymity sought by institutions.