Talks between the London Stock Exchange and Borsa Italiana, operator of the Italian stock exchange, could deal another setback to the



global ambitions.

The London exchange said Wednesday that it was in discussions with Borsa Italiana, operator of the Italian stock exchange, "to establish whether a merger of the two businesses can be agreed," according to a statement.


reported early Thursday that London is preparing a $2 billion bid for its Italian peer.

The news could complicate Nasdaq's efforts to expand globally as exchange consolidation picks up speed. Nasdaq tried earlier this year to bully London into a merger by buying a 30% stake in the exchange and then repeatedly denouncing London's decision to remain independent. But a below-market tender offer for London share failed, leaving the Nasdaq to claim hollowly that it plans to remain "opportunistic" with its stake.

A Nasdaq spokeswoman declined to comment for the article. But with the LSE potentially bulking up, Nasdaq could be looking at another strategic setback.

"If LSE was able to do a merger and become a much larger company, it might not be realistic for Nasdaq to approach it," says Edward Ditmire, an analyst at Fox-Pitt Kelton who rates Nasdaq outperform. "There are only so many exchange partners. For Nasdaq missing out on one or two of them in this deal would be a longer term strategic negative."

Borsa Italiana, while smaller than the LSE, it does regulate and manage several Italian equities and derivatives markets, according to its Web site. The company was formed in 1997 following the privatization of the Italian stock exchange.

Nasdaq's failed run at the London exchange came as its crosstown rival set merger plans that resulted in the formation of

NYSE Euronext


. Nasdaq recently agreed to buy the OMX, an operator of other small European exchanges, for $3.7 billion. But under U.K. takeover rules, Nasdaq must wait until February to make another offer to the LSE.

Patrick Healy, president and CEO of the Issuer Advisory Group, a consulting firm that assists companies in listing on exchanges, says London's plans don't change Nasdaq's dire need for scale.

"They can't just cede global positioning to the

New York Stock Exchange

," Healy says. "They need to acquire London."