Competition watchdogs have voiced concerns over any takeover bids for the London Stock Exchange from rival operators Euronext or Deutsche Boerse.
The commission's ruling means both bidders must rethink their bids
A takeover by either firm would lessen competition by leaving the buyer in control of the LSE's clearing services, the UK's Competition Commission said.
"Significant" changes were needed for either bid to be accepted, it added.
Germany's Deutsche Boerse abandoned a £1.3bn ($2.5bn) bid for the LSE in March after a revolt by shareholders.
Meanwhile, Paris-based Euronext has been awaiting the watchdog's ruling before launching any formal offer.
Euronext combines the stock exchanges of Paris, Brussels, Amsterdam and Lisbon, as well as running the London-based international derivatives market Liffe.
Commentators have long raised the prospect of that competition concerns could derail any offers for the LSE as Europe has only three major exchanges - LSE, Deutsche Boerse and Euronext.
THE PURSUIT OF THE LSE
May 2001: LSE and Deutsche Boerse announce plans for pan-European bourse called iX
August 2001: Sweden's OM bids for LSE, forcing it to withdraw from iX deal
September 2001: LSE bids for derivatives exchange LIFFE, which is eventually bought by Euronext
December 2004: Deutsche Boerse bid for LSE rejected, but door left open for more talks
December 2004: Euronext says it is also interested in bidding for LSE
January 2005: Deutsche Boerse sets out its bid
March 2005: Deutsche Boerse ditches LSE bid
July 2005: UK competition watchdog raises concerns over prospective bids
Following a four month probe, the Commission warned that both potential suitors could restrict access to the LSE's clearing services, making it harder for other exchanges to compete with the LSE in the trading of UK equities.
Frankfurt stock exchange operator Deutsche Boerse owns clearing services provider Eurex while its rival bidder Euronext is currently the major shareholder in LCH Clearnet which provides clearing services for the LSE.
"Any exchange attempting to compete with the LSE and win the business of trading firms on the LSE would require access to LSE's clearing services provider," the watchdog said in a statement.
Measures to remove the concerns could include Deutsche Boerse selling or divesting its control of Eurex Clearing, or the LSE dropping Eurex's clearing services.
It added it would now continue talks with "interested parties" about possible ways to remove any anti-competitive effects of the proposed mergers.
Following the report the LSE said that although it was confident of its future as an independent group, a merger on the right terms "could be in the best interests of shareholders".
Deutsche Boerse welcomed the Commission's findings and said it believed it was "in a favourable position with regard to potential remedies suggested by the Commission".
Meanwhile Euronext said it would "work closely with the Competition Commission and other relevant market constituencies to address the issues raised".
The Commission will publish a full report of its findings next week.