The London Stock Exchange and Deutsche Borse announced their long-awaited merger yesterday, the most far-reaching undertaken by any stock exchanges.
It could start a wave of similar mergers. The new body immediately signalled an alliance with Nasdaq, the US market for technology stocks, that aims to create a global stock exchange.
The London and Frankfurt exchanges announced a full merger of their cash markets in equities and derivatives products into a market called iX international exchanges.
They will also set up a separate market for "new economy" stocks in the technology sector in a joint venture with Nasdaq.
It ends 200 years of independence for the London Stock Exchange and marks a big step for Deutsche Borse, which has led the rapid emergence of Frankfurt as a financial centre.
"This is what our customers really want to see happen," said Mr Gavin Casey, chief executive of the LSE. "It was not possible to achieve this simply by co-operating. There had to be a merger so that we could create a bigger market."
Mr Casey will step down from the LSE when the merger is completed this year. Mr Werner Seifert, chief executive of Deutsche Borse, will take the same role at iX. Mr Don Cruickshank, appointed chairman of the LSE last month, will become chairman of the merged market.
The merger creates the world's third biggest stock market by turnover, accounting for 53 per cent of daily trading in all European equities.
It will rival the Tokyo stock exchange in terms of value and will be by far the dominant stock exchange in Europe.
Observers said its sheer size would make it the partner of choice for other European stock exchanges that are under pressure to consolidate to cut the cost of buying and selling European shares.
IX has already begun discussions with the Milan and Madrid stock exchanges, which could become part of the new exchange next year.
Users of the two exchanges, and especially participants among the global investment banks, which have pushed hardest for Europe's exchanges to consolidate, gave the creation of iX a cautious welcome.
Mr Colin Buchan, global head of equities at UBS Warburg, said it was "a real step forward in creating a more unified trading process in European stocks".
Others said the details of how much the merger would cost users and how much they would save if transaction costs fell was far from clear.
There was also uncertainty about splitting regulation between the British and German authorities. Trading in blue-chip stocks will be based in London and regulated under British rules, while the growth market will be based and regulated in Germany.
