Bourses reduce costs to defend merger

Investors in Germany and the UK will pay less for buying and selling each other's shares, thanks to lower cross-border settlement costs, even if the planned merger of London and Frankfurt stock exchanges is scuppered.

Crest and Clearstream, which settle UK and German stocks respectively, yesterday announced plans for enhanced links to reduce the costs of cross-border share transactions. These are estimated to be three or four times the cost of domestic trades.

The plans were presented as a settlement solution for iX, as the London Stock Exchange and Deutsche Borse would call their merged exchange.

The announcement went some way to fleshing out what the broking community has up to now regarded as insufficient detail on how settlement costs would be cut under iX.

The settlement solution offered by Crest and Clearstream is contingent on the iX merger going through, but OM has made it clear that it would be willing to work with Crest to provide a settlement system for London that would encompass continental European shares. Crest has said it is willing to work with whatever trading system the LSE's shareholders eventually agree to.

OM Group, the Swedish technology and exchange operator that has launched a £882 million sterling (€1.4 billion) hostile bid for the LSE, said it was pleased by Crest and Clearstream's statement.

Its shares closed at 473 Swedish krona yesterday, up over 15 per cent in the last week. LSE shares, which are traded on a matched-bargain basis, closed unchanged at £28.50 sterling.

Mr Don Cruickshank, chairman of the LSE, said the settlement savings did show evidence of the benefits of iX and although these savings would stand regardless of the merger, they would be bigger under the iX plans.

Mr Cruickshank said yesterday that the LSE had not invited Deutsche Borse to make a bid for the LSE in response to this week's hostile bid from the OM Group. Mr Cruickshank met his counterparts at Deutsche Borse and Nasdaq on Wednesday night, but said that nothing substantial regarding the OM approach had been discussed and no other approaches had been made. Deutsche Borse said on Wednesday that it was open to the prospect of leading a white knight bid for its merger partner, but would only do so if invited to by the LSE. OM has 28 days to disclose the details of its bid and the LSE will have a further 14 days to respond.

Porsche became the first listed German company to speak out publicly against the iX merger, arguing that the German stock market would be weakened if trading in blue chips moved to London. "If there are too many mergers the initial euphoria will end in tears . . . we do not need a super stock market," said Mr Holger Harter, chief financial officer of the luxury cars group.