Nasdaq keeps eye on London ball

By Declan Curry, BBC Breakfast's Shares Reporter

If there is one person who has been paying close attention to the London Stock Exchange's various share shufflings on Thursday, it is Frank Zarb, head of the US high tech stock market, the Nasdaq.

He is mustard keen on the idea of share trading that follows the sun - one big stock market that straddles the world and is open for business from international investors 24 hours a day - and he sees London as a lynchpin location for the plan.

He would dearly like to do a deal that brings the London Stock Exchange under the Nasdaq's wing - but so far London's market bosses are resisting his suggestions of a cosy deal.

So he will be very interested to see that, as part of its move to a full listing of its shares, the London market is scrapping the limit on the number of its shares that any one person or organisation can own.

Broader range

At present, no one can own more than 4.9% of the LSE's shares.

It's a rule that was imposed when the Stock Exchange first turned itself into a company, and there were worries that the big market beasts would squeeze out the smaller stockbroking firms that, until flotation, had an equal say in Exchange decisions.

The LSE says getting rid of the limit now will "enable a broader range of institutions to invest in the Exchange's shares".

But that also raises the possibility that the London market could be more vulnerable to a takeover bid - and from someone more credible and serious than the Scandinavian group OM, which failed in its hostile attempt to buy the London market last year.

Believe it or not, there are those who say the London exchange could be a tasty morsel for a company such as Microsoft.

More lucrative

It's not as far fetched as it seems. As shareholding grows more popular around the world, it becomes a more lucrative and more attractive business.

The actual business of share dealing is also no longer the exclusive preserve of the established markets.

After all, much dealing has now moved off physical trading floors and onto electronic platforms.

The right technology company with enough muscle, enough credibility, and the right connections with the financial community could beat the exchanges at their own game.

And they could probably do it for less - always a key factor for the City institutions.

Seamless trading

But that's probably one for the long term.

More immediately, it is well known that some of the biggest customers of the London Stock Exchange - particularly the American giants from Wall Street - are keen to see some sort of link up between markets in London and New York.

That would allow seamless trading in their major fields of business, and could cut costs. (If Japan could be thrown into the bargain as well - and the Nasdaq has its own trading floor there - then so much the better in their view).

With the shareholder limit lifted, more of the LSE shares could end up in the hands of those big US beasts, and they could pile on the pressure for a friendly deal, or cave in to an aggressive one.

But a hostile bid is not Mr Zarb's style. Though the clock is against him - his retirement date is fast approaching - he would rather create his one-world stock market through a series of alliances without any nasty bidding wars.

He and his lieutenants have been speaking on the quiet to key figures in the main European markets, sounding them out about a number of merger or joint-venture ideas.

More interested in plotting

Here in London, many of the LSE's shareholders - stockbroking firms and the like - have been studying a proposal that would lead to the London Stock Exchange and the Nasdaq setting up a new jointly-owned (but Nasdaq-controlled) super-stock market for European blue-chip companies.

Despite the lobbying, there's still no deal. To Mr Zarb's frustration, Europe's big markets seem to be more interested in setting up rival alliances or plotting takeovers against each other.

But he knows he can't give up - he needs Europe and London in his jigsaw.

"The global pipeline for liquidity pools must flow around the world," he told BBC News Online in New York a little while ago.

"And if it doesn't have Europe in it, it's missing a big enough piece for the whole thing not to really work well."

No time to create a new market

The Nasdaq has already tried to set up its own pan-European stock market, in a deal with News Corp, Vivendi and Softbank.

But growth has been excruciatingly slow, and Mr Zarb knows that with that ticking clock, he hasn't got the time to create a new market from scratch and wait for it to grow.

He knows he needs to deal with an established market.

"Time to market is important," he told BBC News Online "and it's easier and faster to get up to critical mass with local partners, if you work with those local partners. And you also have a cultural, regulatory benefit when you bring in those local partners.

"You've got to start with the critical masses - London, Frankfurt, Paris. Then you can spread out from there, but that's where you've got to begin, where there's a regulatory structure, where there's a financial mechanism, where the people speak the language of finance, where brokerage firms exist and trade. Because without them there is no market."

Insiders close to Mr Zarb say his dream deal is one which ties the Nasdaq up with the French, German and British markets, with other smaller European exchanges coming in as associate members.

But they also say he knows that won't happen in his lifetime. To get a deal of any sort during what's left of his working life, things will have to get a move-on.

But he knows you can't hurry love.

"Big ideas have the usual birth problems, so I'm not at all surprised that you have twists and turns," he says "We're patient. We respect all of them. Our doors are open. We will continue dialogue. It will sort out the right way, because it has to."