The London Stock Exchange: What’s the hurry

Competition concerns will delay bidding for the LSE

UNLIKE modern lovebirds, stock exchanges in search of a spouse still need their guardians' approval before marrying. So the 204-year-old London Stock Exchange (LSE) will have to wait a little longer for its suitors. On March 29th, Britain's Office of Fair Trading (OFT), a consumer-protection body, ordered that two takeover offers for the LSE must undergo review by the country's Competition Commission. This is likely to delay formal bidding by Euronext, an operator of several exchanges in continental Europe, and (if it is still interested) Deutsche Borse, a German exchange company, by as much as six months, and perhaps longer.

The watchdogs are worried that consolidation will bolster exchanges' monopolies, and give them excessive pricing power. The OFT noted that competition among Europe's big three exchanges does exist, even if it is “episodic”. Last year, for example, the LSE tried to steal business from Euronext by slashing the price of trading in Dutch shares. Customers benefited, as Euronext cut its prices in order to hold on to market share. The LSE previously ran foul of the OFT in 2003, when an investigation by that body found that the exchange had exploited its market power in 2002 to boost fees for listed British companies. The LSE contritely cut some fees last year by more than a quarter.

What now for Europe's exchanges? Euronext in particular remains keen on a merger: despite the delay, it claims to be the “natural partner” of the LSE, and says a tie-up “would benefit users and create significant value for shareholders in both companies”. Deutsche Borse is in a far weaker position. Its shareholders have already balked at the idea of a merger. They forced the company to withdraw its £1.35 billion ($2.5 billion) offer last month, though the chief executive has defiantly talked of a comeback. Last week Deutsche Borse said it would repurchase its own shares, thus mopping up some of the cash it could have used on a takeover. Now the OFT wants extra scrutiny of the German exchange's business model. Deutsche Borse provides clearing and settlement as well as trading facilities, and some grumble that this gives it too much power.

The LSE, eager to diversify into derivatives trading, will keep hoping for a partner. But with the battle for its hand on hold, takeover action may now move elsewhere. MTS, an electronic bond-trading platform based in Milan, is up for sale. MTS recently came into the spotlight as the platform used by Citigroup last summer to profit from billions of euros-worth of market-moving trades, a transaction that is being investigated by Britain's Financial Services Authority and other European regulators (although German prosecutors recently dropped a criminal probe). On the shortlist of MTS's potential buyers is Euronext, bidding in conjunction with Borsa Italiana, the Milan exchange. When wedding bells for MTS are rung - a match could be announced next month - the LSE will be looking on enviously.

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