Stock Exchange enters £1bn battle for LME

The London Stock Exchange has emerged as one of nine potential bidders in the £1bn auction of the London Metal Exchange.

The exchange, currently in exclusive talks with LCH.Clearnet – which provides much of London's share-trading back office – over a potential merger, could team up with the Singapore Stock Exchange to generate added firepower for what is expected to be a hotly contested battle. The LME, a private company whose shares are held by its member firms, including banks and metals dealing houses, put itself up for sale last week amid a flurry of contacts with potential bidders. They have been attracted by its status as one of the few remaining independent exchanges available that is not part of one of the major exchange blocs. Business at the LME, which famously still operates part of its business on a type of "open outcry" trading that held sway across the City before screen-based dealing took over, has been booming amid record high commodity prices and volumes.

Talks were said to be at "a very early stage". However, the LSE was thwarted in its attempt to pull off a merger with the Toronto Stock Exchange earlier this year and is very much on the hunt for further deals. Nationalistic concerns played a role in the failure of the Toronto deal, with a large enough minority of the exchange's shareholders voting against to block the plans. That sparked speculation that the Nasdaq, which subsequently took over Nordic exchange group OMX, could make a third tilt at the LSE.

However, its chief executive Bob Greifeld upset a number of people in London with the high-handed manner in which he conducted the bid. And even though the London exchange's management has changed, there is little appetite to tie up with the US group. Xavier Rolet, LSE chief executive, has made clear his ambition to diversify the exchange's business away from its core equity trading arm. He has already added MillenniumIT, a Sri Lankan technology business, to the exchange's portfolio and has been winning contracts and improving links with other exchanges as a result.

But a takeover of the LME, with or without a partner, would be of an entirely different magnitude, establishing Mr Rolet's deal-making credentials and transforming the LSE once again into a premier league player in the exchange landscape.

Like the LSE, the Singapore exchange is also coming off a failed merger, when its attempt to seal a deal with Australia's ASX exchange was blocked by the Australian Government.

While most major exchange groups are likely to be casting eyes at the LME, the operation could easily fall prey to an American operator, which have previously proved willing to pay up to get a deal done. Michael Spencer's Icap, a money broker which now has many of the characteristics of an exchange, has also indicated he would be interested but has proved reluctant to overpay in the past.

Another contender could be the Chicago Merchantile Exchange, the US derivatives group, that has previously approached the LME.