LSE plots full Nasdaq merger despite attack on German deal

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The Independent Online

The London and Frankfurt stock exchanges are to begin merger talks with Nasdaq, the US technology-rich exchange, to create a global trading platform once their own merger is bedded down next year.

The London and Frankfurt stock exchanges are to begin merger talks with Nasdaq, the US technology-rich exchange, to create a global trading platform once their own merger is bedded down next year.

Don Cruickshank, chairman of the London Stock Exchange, speaking after the information memorandum about the planned iX merger was sent to shareholders of the two exchanges, said as well as taking substantial cross-shareholdings in each other, "the exchanges ... will work together thereafter to explore a full merger of interests to create a global exchange".

The document clarifies several key issues including:

* Timing: the deal will be voted on by LSE shareholders on 14 September; the merger will become effective on 1 November;

* Cost savings of £50m a year will be achieved from 2002 by moving to one technology platform; the costs of achieving the synergies will be £85m which will be taken as a charge spread over two years;

* The new pan-European big-cap and growth company markets will start next year while SETS, London's existing technology platform will be phased out by December 2001;

* Compensation: UK brokers will receive £30,000 each to offset the cost of systems migration at a total cost of £8m.

The LSE has also borrowed the clothes of Liffe, the London Futures Exchange, and is seeking to spend more than £60m over the next five years developing three to five E-businesses a year, mainly business-to-business marketplaces in non-financial commodities such as steel and agrichemicals.

Shares will be traded on a limited facility by Cazenove the stockbroker from 24 July.

Mr Cruickshank has won some notable victories - a clause in an earlier draft suggesting that there would be an auomatic shift to euros once more than 50 per cent of trade was in that currency does not appear in the draft. The LSE has also overcome misgivings in Frankfurt about giving Nasdaq a key role in the iX exchange, and emerged with two of the three executive posts on the board.

Brokers complained about a continued lack of clarity on regulation. They also complained that arrangements put in place by Crestco, the London settlement organisation and its German counterpart, Clearstream only addressed the short-term issues. Angela Knight, chief executive of the Association of Private Client Stock Brokers and Investment Managers said: "Whereas there is a lot of information for shareholders there are still some gaps for users."

She also questioned whether the compensation being offered to brokers to pay for the switch from SETS to Xetra would be anywhere near enough. Mr Cruickshank said that yesterday's memorandum was addressed to shareholders and that issues such as the structure of the new markets needed to be addressed through consultation with users at a later stage. He did, however, rule out any question of selling the Alternative Investment Market (AIM).

Jeff Plowman chief executive of Dealwise which was recently taken over by TD Waterhouse said that he was resigned to the deal going through."If we don't like it ... we can sell our shares and go elsewhere," he said.

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