Exchange to lose iX merger vote

Leading brokers snub Deutsche Börse with Connect proposal for AIM deals
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The Independent Online

The London Stock Exchange is heading for defeat in its bid to merge with its Frankfurt counterpart, according to an exclusive survey by the Independent on Sunday.

The London Stock Exchange is heading for defeat in its bid to merge with its Frankfurt counterpart, according to an exclusive survey by the Independent on Sunday.

The news comes as it emerges that brokers from some of the leading City firms have made approaches to Connect Cap Gemini, the financial technology group part-owned by the London International Financial Futures Exchange (Liffe), about a possible deal for it to run the Alternative Investment Market, the LSE's junior market.

It is understood that one plan, still in its early stages, is for the Connect trading system, which Cap Gemini Ernst & Young developed with Liffe and now part-owns, to "host" trading in AIM stocks. This means that trading in these smaller shares would take place over the Connect system rather than over the Xetra system, developed by the Frankfurt Börse, which is the technology platform to be used when the London and Frankfurt markets merge.

The Connect system is already being used in the majority of the City's dealing rooms for the trading of financial futures and options.

The move by the brokers comes as opposition to the merger grows. Many brokers think the decision to merge with Frankfurt has been ill thought out and that the LSE would have done better to seek a deal with Nasdaq, the New York-based market, which is looking for a European partner.

Although the LSE is expected to secure a majority when the merger vote takes place next month, this is likely to fall short of the 75 per cent required to give the green light to the merged exchange, to be known as iX. A survey of more than a quarter of members showed that 59.1 per cent of votes cast were likely to be in favour, with 40.9 against.

The unease felt by some of the LSE's smaller members at the prospect of the merger has recently been reinforced by expressions of opposition from more high-profile quarters. Abbey National, which has six of the 297 votes, making it the exchange's most powerful shareholder, has made clear its own disquiet.

Although a number of small stockbrokers have indicated support for iX following meetings with Don Cruickshank, the chairman of the LSE, the bulk of the "yes" vote will come from the large City investment houses that have been the merger's prime movers. Goldman Sachs, which is advising the Deutsche Börse, Merrill Lynch and Schroder Salomon Smith Barney, which have both been retained by the LSE, are all expected to back the deal. Britain's largest banks, such as Barclays, most of which have multiple shareholdings in the exchange, are also likely to fall into line.

Meanwhile, in order to influence the outcome of the vote, some parties on rival sides of the argument have begun to build up their shareholdings in the exchange. Guinness Peat Group, the activist investment group, has built up a stake in the LSE which it is likely to use in order to oppose the merger. Last week, UBS Warburg, the investment bank, increased its own stake, in a reluctant move to vote for the merger.

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