Exchange moves to foil predators

London Stock Exchange rules governing the reserve asset requirement of its members have been amended in a move designed to discourage a hostile takeover bid.

London Stock Exchange rules governing the reserve asset requirement of its members have been amended in a move designed to discourage a hostile takeover bid.

It is understood that the LSE has persuaded the Securities and Futures Authority to reform the rules so its members can use their shares in the exchange as reserve capital. At present, member firms have to withhold the equivalent of three months' expenses to provide a safety net in the event of their going down. By allowing members to use their LSE shares as emergency capital rather than much-needed cash, the exchange has made it much less likely that smaller members will choose to sell their shares to a bidder.

The change comes as the LSE's shareholders ponder their response to Friday's increased bid by OM Group, the Swedish company whose revised offer values the exchange at £983m. It is understood that several shareholders previously minded to accept OM's bid have been put off by the new reserve asset rules. The LSE has dismissed the bid as "inadequate".

The LSE should receive another boost this week to its desire to stay independent. At Thursday's extraordinary general meeting, an attempt to increase the maximum individual shareholding in the exchange is expected to be defeated. At present, no member can own more than 4.9 per cent - a rule that has led to charges of hypoc- risy since no such ceiling is permitted for listed companies. But Apcims, the retail broker association, last week pledged its support for the limit as a way of giving the LSE time to formulate its new strategy.

Meanwhile, reports suggest that Nasdaq, the US electronic stock exchange, has been canvassing members on the poss-ibility of a merger with the LSE.