The London Stock Exchange has dominated the buying and selling of shares in the capital since its foundation in 1801, but all this is coming under threat.

Three main rivals have emerged. One has existed for several decades, but recently has been refurbished. One opened for business last year, but has focused mainly on continental stocks so far. A third is well behind schedule, but expects to be running by the end of the year and has the backing of, and a promise of business from, seven big City banks.

The LSE, which has spent a bruising three years seeing off takeover bids, declares itself largely unconcerned by these assaults on its dominance, but it is determined to avoid complacency. “We believe we have a unique and valuable franchise positioned in London,” a spokesman said. “Our interim results show that we continue to attract record numbers of international companies to our markets: more in the first half than on NYSE Euronext, Nasdaq and Deutsche Börse combined. We will not, however, rest on our laurels: we are continually investing in technology and creating new products to maintain this competitive advantage.”

In the autumn, the LSE upgraded TradElect, its own trading system, a step that some saw as an attempt to head off its rivals. Its spokesman said: “We operate in a competitive environment in London and have done so

for some time. Our job is to focus on offering the best market possible, continuing to invest in our technology, focusing on driving efficiency in the market and providing access to a wide range of investment opportunities in order to make our markets the most attractive place to trade for the widest possible cross-section of the market.

“Our recent TradElect upgrade increased capacity by a further 70 per cent while average end-to-end latency was reduced by 40 per cent to around six milliseconds. This has helped facilitate record trading volumes.”

It is desperately hard for newcomers in any exchange to gain market share from an incumbent. The maxim that “liquidity follows liquidity” means that once business is established around a market, those already there have little impetus to transfer it elsewhere. Thus, there is no available business to do elsewhere. It is a circular argument, that there is no trade because there is no trade, but it has always held true. Attempts to poach business on a rival's home patch have almost always failed.

The LSE tried to gain a slice of the Amsterdam equities market in 2004, but failed. Eurex, the German derivatives exchange, tried to set up in Chicago and take on its incumbents, the Chicago Mercantile Exchange and the Chicago Board of Trade. It failed.

Attempts by Nymex, the American futures market, to compete with what was then the International Petroleum Exchange in London failed. The only successful capture in Europe in living memory was the wresting of the German government bonds market by Eurex from Liffe, the London financial futures market, in the late 1990s, and most observers believe that it took a degree of contributory negligence on Liffe's part for this to happen.

There have been rival markets in London before, but they, too, have failed. The Swedish exchange OM, which tried to take over the LSE in 2001, set up its Jiway “virtual market”, but this closed the next year having attracted negligible business.

There are, though, reasons why the latest attempts to end the LSE's London stranglehold may have a better chance. One is regulatory. In November the European Union's Markets in Financial Instruments Directive (MiFID) was implemented, intended to stimulate cross-border trade by eliminating anti-competitive rules, such as requirements that all business go through the incumbent exchange. Although these rules do not apply in London, MiFID has had the effect of encouraging the LSE's various rivals, all of which operate from a lower cost base. In addition, each claims to offer advantageous terms. Tariffs may be less, although the LSE has been cutting its charges, in part to make the competition less attractive, or the technology may be claimed to be more efficient.

The competition

Plus Markets

— The most established of the LSE’s rivals, having been spun off from Ofex, an over-the-counter market that fell on difficult times

— Founding Jenkins family departed in a £3 million rescue, and another £25 million was raised

— Initially backed by a number of traditional marketmakers who were disenchanted with the LSE’s drive towards electronic trading

— With 55 brokers, claims to have about a third of the UK retail market

— In November all FTSE 100 stocks were quoted on Plus Markets for the first time. And so all stocks quoted on the LSE are also traded on the platform, along with about 70 AIM stocks

— Before Christmas another 6,000 European stocks were added, bringing the total to about 7,500

— Run by Simon Brickles, a former LSE man and an AIM founder

— Already this year, Plus has captured more than half of all retail trades in London on the odd day, easily achieving an average of 35 per cent to 40 per cent

— A City analyst says: “Brickles is tremendously respected. Still, nobody’s really got a clue when they start to make any money”

— Impact on the LSE’s business potentially significant at the smaller end of the market

Turquoise

— Launched amid some fanfare late in 2006, it is owned by seven large City banks

— Originally called Project Turquoise, has been notable up to now for a number of missed deadlines, earning it the nickname Project Tortoise

— Appointment of a chief executive from outside apparently blocked by a member bank. Instead, Eli Lederman, of Morgan Stanley, one of the founders, took up the post in December

— At the same time it announced Cinnober, of Sweden, as a partner to provide its trading platform

— Initially, some wrote off Turquoise simply as an attempt to put pressure on the LSE to cut tariffs and questioned whether it would launch

— Insiders complain of the difficulty of making decisions that need the approval of seven banks, and the delays have not helped credibility

— Spokesman says that it is “marginally ahead” of its target to launch in the autumn

— Impact on LSE’s business could be significant

Chi-X Europe

— Owned by Instinet, a global agency broker, itself owned by the Japanese bank Nomura, it is one of several planned multilateral trading facilities (MTFs). These allow big City institutions to deal in equities off-market and anonymously and are otherwise known as “dark liquidity pools”

— The model has been successful in the United States. A recent study from Celent, the consultant, suggests that MTFs may account already for as much as 10 per cent of the market

— Chi-X has been dealing in Dutch and German shares since March and extended the service to FTSE 100 and French companies in the summer

— Based in Canary Wharf, it employs 20 people and uses its own internally developed software rather than buying it from providers such as the Scandinavian OMX

— Clients include big international banks such as Credit Suisse, UBS and Banque Nationale de Paris

— Claims to be up to ten times faster and ten times cheaper than a regulated exchange. Sells itself as “a market for speed”

— Impact on LSE’s business doubtful, although probably a useful niche platform

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax