Euronext undermines German bid with rival London exchange

Euronext, the Franco-Dutch group which owns the Liffe derivatives market, is planning to launch a rival to the London Stock Exchange.

The group, which runs the Paris and Amsterdam ex- changes as well, is also considering a rival bid to counter the £1.35bn offer for the LSE made by Frankfurt's Deutsche Börse. The LSE rejected the German offer but said that it would enter into talks to see if the Börse could improve its deal.

Meanwhile, Euronext is working with three investment banks - UBS, Morgan Stanley and ABN Amro - to see if it can outbid the Börse.

However, Euronext's board is unlikely to make a final decision on whether to bid until after the New Year.

Meanwhile, it has been quietly working on plans for a rival stock market in London. A team from Euronext Paris has been at the Liffe offices next to Cannon Street station developing a trading platform for UK stocks and shares. It have been holding discussions with major securities firms to secure their support for the project.

Initially this was seen as a way of fighting back after the LSE started a business trading major stocks on the Amsterdam markets.

However, the London stock market project has taken on new importance after announcements of the Börse 's bid approach.

The German indicative offer of 530p per share is more than 50 per cent higher than the trading price last month. Dealers in London are holding out for a higher bid and the shares closed at 556p on Friday.

The Börse's offer has run into other problems, both in London and in Frankfurt.

In London, securities firms which use the LSE are concerned about how a German takeover would affect the way deals are handled by back offices - a process called clearing and settlement. The Börse owns its own clearing and settlement company, Eurex, and all deals done on the Börse have to use it.

LSE trades are cleared through a company called LCH/Clearnet, which is partially owned by Euronext and partially by the securities firms, and settled on Crest, an independent operation. The Börse has offered to honour all existing clearing and settlement contracts but these only run for about a year. To appease unhappy brokers, it may be prepared to extend this offer further.

However. the European Commission may look into the issue of settlement.

It is understood that the EU is in favour of further consolidation of stock markets, as it feels this would aid a single market in securities. But it would be concerned about the competition issue of there being no choice in clearing and settlement.

The Börse also has problems in Frankfurt after its chief executive, Werner Seifert, suggested that a merged company would be run out of London, with Clara Furse, the LSE chief executive, taking a leading role. The Mayor of Frankfurt has raised concerns about this move, suggesting that it could lead to the loss of up to 1,400 jobs in Germany.