Goldman Sachs, Merrill Lynch, Morgan Stanley and JP Morgan are looking to set up a pan-European electronic stock exchange.

The move has been prompted by a desire to cut costs as well as frustration with the slow progress being made by the alliance between European stock exchanges.

The editor of German financial daily Handelsblatt,Stefan Keidel, said that while the major banks would like the London and Frankfurt exchanges to link, they are also considering other options which would allow them to cut costs, including setting up their own exchange.

Goldman Sachs has declined to comment on the report.

The news comes as Dresdner Bank considers a role in Tradepoint Financial Networks. This London-based exchange - created in 1995 to rival the London Stock Exchange - is also developing plans for pan-European trading.

Tradepoint has thus far only managed to gain around 0.5% of the trading volume in UK shares. Plans to include other European blue chip shares form part of Tradepoint's turnaround strategy.

Alliance troubles

Plans to link stock exchanges across Europe have so far been fraught with difficulties.

Eight European stock exchanges - led by the London and Frankfurt stock markets - are in talks to build a single electronic trading platform for Europe's top stocks, with common rules and regulations.

The other exchanges are Amsterdam, Brussels, Madrid, Milan, Paris and Switzerland.

So far, the exchanges have offered members simplified access to other exchanges. They have also agreed to synchronise trading hours.

The London and Frankfurt exchanges are set to harmonise their trading hours from 20 September, while others are set to follow.

Little else has been agreed, as each exchange has its own technology which it is reluctant to abandon.