London Stock Exchange in talks to buy rival trading platform Turquoise

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The London Stock Exchange is in exclusive talks to buy Turquoise, the trading platform launched last year to compete aggressively with the London market and cut trading costs.

The news comes just days after the LSE, headed by Xavier Rolet, the former Lehman Brothers banker who succeeded Dame Clara Furse as chief executive earlier this year, appointed Barclays Capital and Morgan Stanley to advise on mergers and acquisitions activity by the group.

Eli Lederman, the head of Turquoise, recently indicated his willingness to listen to offers when he called in UBS to scout for buyers.

Backed by Credit Suisse, Morgan Stanley, Goldman Sachs, Citi, UBS, BNP Paribas, Deutsche Bank and Société Générale, Turquoise, which has yet to turn a profit, was set up to bring down the cost of trading, but came to market seven months later than hoped, in August 2008.

Since launching, Turquoise has faced competition from other alternative platforms such as Chi-X and BATS Europe, while the nine co-founders, who between them have invested an estimated £30m in the platform, have had to deal with the pressures posed by the financial crisis. One Turquoise insider said the banks were unlikely to recoup their investment on the venture.

For the LSE's Mr Rolet, a successful deal would help build bridges with Turquoise's owners, who are also among the exchange's biggest customers. It would also present new options for Baikal, the LSE's "dark pool", or off-market trading venture, which was originally set up in partnership with Lehman Brothers, the failed American investment bank.

To take Baikal forward, the LSE has been seeking partners from among Turquoise's shareholder base. The platform also comes with its own "dark pool" and, as an alternative, Mr Rolet could even merge the two ventures.