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Stock exchange crown jewels must stay in London: UK lawmaker

By John O'Donnell and Andreas Kröner

By John O'Donnell and Andreas Kröner

FRANKFURT (Reuters) - Britain should block any attempt by Germany to shift the headquarters of the London Stock Exchange to Frankfurt after it merges with rival Deutsche Boerse, a British lawmaker said on Tuesday.

Under the terms of the deal to create Europe's biggest stock market, Deutsche Boerse Chief Executive Carsten Kengeter is due to head the combined group, with London the home of the main holding company and its joint board.

But a number of German politicians have made it clear they want the headquarters to be in Frankfurt if they are to back the $27 billion merger, which was agreed before Britain voted in June to leave the European Union.

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Now political pressure is also rising in Britain.

Bill Cash, a British eurosceptic Conservative lawmaker who is due to lead a parliamentary debate on the issue on Tuesday, said keeping the LSE headquartered in London was a matter of national interest and the British government must dig in.

"It's not a normal commercial operation. This is much more about the acquisition of the crown jewels," Cash, who chairs the House of Commons' European Scrutiny Committee, told Reuters in a telephone interview.

"That's a matter of national interest. There is no conceivable reason why it can be in our national interest to have it transferred to Frankfurt," he said.

Cash said he hoped the debate would trigger wider discussion about an issue that has received little attention from the British media or the government so far as preparations for divorce talks with the European Union hog the headlines.

If the British government were to adapt the position advocated by Cash, it would put London on a collision course with Berlin and potentially torpedo the merger.

The location of what will be Europe's biggest stock exchange has symbolic and operational significance, with regulators keen for oversight of its derivatives processing business.

Advisers and company executives are divided about whether London's status as the main headquarters can be changed. Some people involved argue it could require a new vote by shareholders of both exchanges, which could upset the deal.

LSE chief executive Xavier Rolet recently insisted that "the deal is set". Deutsche Boerse chief Kengeter described the question of a move only as "speculative".

However, Britain's departure from the European Union may isolate London as Europe's financial center and that has turned the tables in favor of Frankfurt.

"The reasons for the headquarters being in Frankfurt are crystal clear," Thomas Schaefer, the finance minister of the state of Hesse, home to Frankfurt and Deutsche Boerse, told Reuters earlier this month.

One of the chief concerns for EU regulators is that London-based LCH Clearnet, majority owned by the London Stock Exchange, clears more than half of all interest rate swaps traded around the world, many of which are in euros.

That means as soon as Britain leaves the European Union, the clearing and regulation of euro transactions will be outside the bloc.

(Writing by John O'Donnell; editing by David Clarke)