The London Stock Exchange is in advanced discussions regarding a possible merger with Italian exchange operator Borsa Italiana.
The London exchange has confirmed the discussions with Borsa Italiana "to establish whether a merger of the two businesses can be agreed".
It is thought that Borsa Italiana chief executive, Massimo Capuano, will outline a putative deal to board members at a meeting on Thursday.
Reuters says the two exchanges are hammering out a partnership deal in which Borsa Italiana has a minority position but maintains its autonomy.
The Milan Bourse is mutually owned by its members. An attempt at a flotation was stalled last year. At the time, the Borsa was valued at EUR1.1 - EUR1.4 billion. The LSE is understood to be looking at a price tag of approximately EUR1.5 billion - a valuation similar to its own of 18 times earnings.
Borsa Italiana is the third largest European stock exchange in terms of the number of trades and fourth largest in terms of value traded. Its earnings grew 21% to EUR63.4 million in 2006, on costs of EUR172 million. Analysts expect the deal could generate cost savings of around 20-40%.
Reports of a possible tie-up between LSE and the Italian exchange first surfaced last year when Capuano said that the Italian exchange must find an international partner and take part in the consolidation sweeping the industry. At the time Capuano said London was the "most interesting" marketplace, although Nyse/Euronext and Deutsche Bourse have also been mooted as potential partners in the past.
In a statement released Thursday morning, Nyse Euronext said Borsa Italiana has exercised its call option right to purchase all the shares held by Euronext in MBE Holding, the joint venture company which owns 60.73% of electronic bond network MTS.