Senior city figures are urging the London Stock Exchange and Liffe to merge, with Brian Williamson, Liffe's chief, as chairman of the combined group.
The move would be a response to the consolidation among the European exchanges which took a significant step forward with the announcement of the Euronext alliance linking Paris, Amsterdam and Brussels. The Stock Exchange is also believed to be in talks with Nasdaq, the high-profile US exchange, about a possible partnership in the creation of Nasdaq Europe.
The Stock Exchange's current chairman, Sir John Kemp-Welch, is due to step down at its AGM in July. A committee has been holding secret meetings to chose his successor. Even senior Exchange staff are being kept in the dark.
The leading financiers are hoping to get the support of the Bank of England, which has traditionally played an active role in promoting the City's interests. It has been impressed by Mr Williamson's success in turning Liffe around.
However, the Bank of England is reluctant to be seen to be taking sides at this stage, despite having been one of the promoters of Mr William's return to Liffe in 1998.
Since returning to lead the fightback at Liffe more than 18 months ago, Mr Williamson has remained in regular contact with Eddie George, the governor of the Bank of England, who has been taking a keen interest in events. He is seen as a figure able to generate the kind of ideas and enthusiasm need to take the Exchange forward - the kind widely believed to have been absent at the Stock Exchange in the past.
One well-placed source said yesterday: "Williamson is their blue-eyed boy. He is well connected internationally and understands markets. He is also a great believer that there needs to be more cohesion between City institutions if London is to beat off the challenges from other financial centres abroad."
A decision to back Mr Williamson could, however, cause problems for Gavin Casey, the existing LSE chief executive, who is seen as having struggled to push through reforms against entrenched resistance. "Mr Williamson is a strong character who would want to have his own man."
When asked about the likelihood of his getting the LSE job, and the prospects of a merger between the two exchanges earlier this week, Mr Williamson said: "I am not going comment on this at all."
Mr Williamson has talked in the past of a grand alliance of the LSE, Liffe and Lloyds, although more recently his efforts have focused on increasing co-operation between the exchanges and the London Clearing House with a view to providing a seamless dealing service for all exchange-traded financial products.
Bringing Liffe and the LSE closer together would offer the opportunity to bring together the cash equity and equity options businesses under one roof. A tie-up could also herald a change of focus away from instutitional investors towards retail investors, whose interest in shares has taken off dramatically in recent months. Private investors may soon start looking seriously at investing in derivatives products.
Liffe's new trading system, Connect, can trade cash instruments as well as futures, commodities and options and can also hook up with the internet.
The German Exchange will tomorrow confirm plans to list on its own exchange and most probably on Nasdaq in the US. It owns the cash market half of Eurex, the German-Swiss futures market which is now the largest derivatives exchange in the world by volume, and Cedel, the European clearing house.
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