THE New York Stock Exchange, the latest potential suitor to emerge for the London Stock Exchange, has had private conversations with big LSE investors to see if they are interested in selling out.

Two United States-based hedge funds, which own shares in the LSE but declined to be identified, told The Times last night that they had been approached by Citigroup on behalf of the New York Stock Exchange. They said that Citigroup wanted to know if the hedge funds would sell their stakes at a price of about £11.75, the same sum that Nasdaq paid for its 14.99 per cent stake in the LSE last week.

It is understood that the funds declined to indicate their interest in selling at any price. The NYSE refused to comment about any talks, but a Wall Street source cautioned that hedge funds had a vested interest in perpetuating speculation that could drive up the price of LSE shares.

The NYSE is currently raising $2 billion in a share offering and is under constraints over the public statements that can be made during this process, which is expected to take another two weeks.

Sources at the Securities and Exchange Commission said that the US market regulator was keeping a close eye on proceedings between the NYSE, LSE and Nasdaq to see if any of the strict rules governing mergers and acquisitions are breached.

“If the NYSE is sounding out shareholders of the LSE to see if they want to sell, then that is OK,” the SEC source said, “but if they do the same while holding a bag of cash and saying ‘we want to buy’ it is another (thing), from a regulator’s point of view.”

Nasdaq, the other New York market, was free yesterday to increase its stake, but it is thought that the LSE share price, up 27½p to £12.59½p last night, has run ahead of the amount Nasdaq is prepared to bid.

Under takeover rules, the Americans are required to match the highest price paid for the shares in subsequent purchases, so putting a floor on the price that they would have to pay in any formal bid.

At last night’s price, the LSE is worth £3.2 billion. Separately, it emerged last night that UBS, the Swiss bank, had topped up its holding in the LSE and now has a 6 per cent stake.

The London exchange has been in play since a possible approach by Deutsche Börse in December 2004.

• Being a member of the New York Stock Exchange is not as profitable as it once was. More than 80 member firms made a combined loss of more than $1.6 billion (£890 million) in the last three months of last year, according to figures on the 217 members published yesterday. The number failing to make a profit increased and those making a profit were making less money than last year.

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