The London Stock Exchange or LSE, the world's third largest exchange in terms of value of shares traded, is discussing with Financial Technologies or FT to buy a stake in its stock exchange arm MCX-SX, the Business Standard reported.

Though the exact nature of the discussions between FT and LSE could not be ascertained, the London Exchange is understood to have asked for a 5% stake. Sources said a deal between MCX and LSE has the advantage of synergy.

In October 2008, FT group promoted MCX exchange to run currency derivatives trading. It now awaits regulatory approval to commence equity trading. Apart from the main equity business, MCX-SX also plans to launch a segment for small and medium enterprise (SMEs) on its stock exchange.

LSE runs one of the world's most successful SME trading platforms, the Alternative Investment Market (AIM), on its exchange. Many Indian companies are listed on AIM.

As a part of licensing conditions, the group will have to start divesting its stake by the end of the first year of operations. MCX is already in talks with several global investors, including LSE.

According to Securities and Exchange Board of India guidelines, overseas players, including stock exchanges, can invest up to 5% in Indian stock exchanges.

For LSE, the deal would be crucial, in case it wants to be an equity partner in an Indian stock exchange. The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) have little room to expand their equity bases to accommodate another overseas exchange. The New York Stock Exchange holds 5% in NSE and Deutsche Borse of Germany and Singapore Stock Exchange hold 5% each in BSE.

LSE was trying to expand its presence outside London, after it had overcome a takeover threat in 2007 from Nasdaq. It recently acquired Italy's leading stock exchange, Borsa Italiana.

An LSE spokesperson declined to comment on the development, but said, it has a strong commitment to the Indian market and feel certain that the country will continue to be at the centre of our international business.

Recently, Jignesh Shah, vice chairman, MCX-SX, said, MCX-SX was based on the 'India Model' with the best global equity partners, alliances and practices.

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