LONDON -- The London and Frankfurt stock exchanges said on Monday they are in talks with the
about fully merging to create a single "global exchange."
The announcement comes only a few months after the two premier European bourses announced a joint venture with Nasdaq, and increases considerably the pressure on the exchanges' shareholders to approve the pending
merger between London and Frankfurt.
In a joint statement coinciding with the publication of their memorandum for shareholders on the iX merger, the
London Stock Exchange
, or LSE, and the
said their "ultimate aim is to form a long-term, substantive relationship on a global basis with Nasdaq." They "intend to take substantial cross-shareholdings in each other and will work together thereafter to explore a full merger of interests to create a global exchange," according to the announcement.
The memorandum signals that London and Frankfurt intend to press ahead with their merger as planned, despite major reservations in both Britain and Germany. Shareholders in both exchanges will vote in simultaneous ballots on Sept. 14, but it is far from clear there is a sufficient majority in favor of the merger in either country.
Some 75% of Deutsche Boerse shareholders must agree to the merger, but last week its supervisory board failed even to agree on an agenda for the September shareholders' meeting. Seven out of 21 members of the board refused to back the agenda presented.
In Germany, the merger with Nasdaq has been a particularly sensitive issue. Under the agreement announced by London and Frankfurt in May, iX would create a pan-European blue-chip market based in London and a high-growth market based in Frankfurt, built on the size and success of the
But the headquarters of iX -- and by implication the control center of its joint venture with Nasdaq -- will be in London. Many people in Germany fear that this means that in the mid-term the high-growth market will inevitably move to London, lowering Frankfurt's stature as a financial center. Monday's announcement of the intention to seek a full merger with Nasdaq will inevitably exacerbate these worries. Several supervisory board members have already demanded a separate headquarters in Frankfurt for the high-growth market and the joint venture with Nasdaq.
A further focus of concern has been the cost for British companies of switching from
, the trading system installed by the LSE earlier this year, to
, Frankfurt's trading platform. British brokers are unhappy with the additional costs they will have to bear, while their counterparts in Germany are miffed at the subsidies British brokers will get. The documents published Monday say that iX will offer "extensive assistance" to LSE customers. It will provide
8 million ($12 million) to British customers, who will each receive 30,000 pounds to cover the costs of installing Xetra.
LSE Chief Executive Don Cruickshank, who will become chairman of iX, said Monday the merger will bring the two exchanges cost savings of
50 million annually, as well as cut costs for customers. Important questions remain on clearing and settlement, however.
, which provide settlement and clearing for the two exchanges, said they are in "constructive and detailed" discussions about integrating their services.
The memorandum also said that existing indices such as the
will continue to exist, but in addition iX intends to create a "single pan-European index family."