THE Competition Commission will restart the auction for the London Stock Exchange this week when it publishes the results of a seven-month inquiry into rival bids for the London market.

The regulator’s decision is expected as soon as tomorrow and will set out various preconditions to a successful takeover.

The two remaining runners in the race are Euronext — which operates four continental exchanges and Liffe, the London financial futures market — and Macquarie, the Australian bank. Deutsche Börse, a third potential bidder and the first to make an actual approach, was forced to drop out after a shareholder revolt.

The Commission is expected to clear Euronext to bid, but with the strong precondition that the company weakens its hold on the London clearing market. Customers of the LSE have expressed concern at too close a link between share trading and backroom functions such as clearing and settlement.

Euronext has a 41 per cent stake in LCH.Clearnet, which operates clearing services for London and a number of continental markets, although it votes with only 25 per cent of the shares and has agreed to reduce its holding to this level.

The Commission has already indicated that it wants the stake to be reduced to 15 per cent, and this is expected to be the main precondition in this week’s report. In addition, Euronext will probably have to reduce its boardroom representation from four members to one.

The company is making no comment before the Commission’s decision, but neither condition is seen as a deal-breaker. Jean-François Théodore, the Euronext chief executive, is expected to consider carefully the economic implications of any sale of the LCH.Clearnet stake before rushing back into negotiations with his counterpart at the LSE, Clara Furse.

Euronext was not commenting on earlier reports that it might ditch plans for a full cash bid in favour of a nil-premium merger with the LSE based on the issue of new equity, but such a change of tack is not expected and would require a formal regulatory announcement to its shareholders.

Macquarie’s interest in the LSE was revealed in August and the bank is believed to have the financing largely in place with a range of other banks. Some observers believe the Australians need to find a partner before making an approach, as this is the only way to achieve the necessary synergies to fund a deal.

The LSE is showing increasing signs of wanting to retain its independence. Since the bid saga began in December, the Exchange has put out a series of bullish trading announcements emphasising the growing volumes of business going through the market, expecially on its Sets paperless trading platform.

A further confident update on trading is expected on Thursday, when the LSE announces interim figures. Some reports have suggested that Ms Furse and the board there are looking for a take-out price of £7 a share or more, as against the 555½p that LSE shares closed at on Friday.

Euronext is likely to balk at such a price. It has come under pressure from its own shareholders, some of whom are concerned that M Théodore may be tempted to overpay. Others favour a merger with the Börse, although there would be formidable technical obstacles to such a link.

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