Exchange falls victim to market as shares plunge 25% on second day

The price of shares in the London Stock Exchange fell 25 per cent to £17.50 yesterday, slashing the value of the exchange to £519m.

The price of shares in the London Stock Exchange fell 25 per cent to £17.50 yesterday, slashing the value of the exchange to £519m.

The fall on the second day of trading came despite loyal buying by three of the London Stock Exchange directors who will join the board of the combined iX group if the planned merger between the London and Frankfurt bourses goes ahead.

The trio - Martin Wheatley, who is to join the iX board as deputy to the iX chief executive-designate Werner Seifert, Jonathan Howell, the finance director, and Ian Salter, a non-executive director - between them bought 1,650 shares at between £20 and £25 a share.

Since trading opened on a match-bargain dealing system operated by Cazenove, the stock broker, on Monday, shares in the London Stock Exchange have fallen by 37.5 per cent from the starting price of £28.

Trading volumes were 171,000 yesterday, down sharply from the 670,000 recorded on Monday. The share price falls have confounded predictions that the market would put a value of £700m on the Exchange. The biggest recorded trade was 24,000 shares.

LSE officials yesterday sought to play down the share price fall, insisting it was "early days yet".

However, unless the share price recovers before 14 September, when members vote on the iX merger plan, it will be hard to justify going ahead on the basis of a 50-50 split between the London and Frankfurt bourses.

Talk of massive buying by American investment banks keen to railroad the merger through have so far failed to materialise. Seventy-five per cent of the London Stock Exchange's 297 members need to vote in favour of the deal to get the merger through.

Although there has been some selling of small packets of shares, the pattern of dealings suggests that most retail brokers have heeded warnings not to rush out and dump their 100,000 shares until after the vote on the iX merger.