NYX Nyse Euronext

The London Stock Exchange Group PLC (LSE.LN), which is diversifying and expanding its services beyond Europe, is looking at possibly listing in Shanghai.

"We remain open minded on it and we continue to follow developments. It would be some way off because you would need the international board to be established first and still look at the costs and benefits of a listing in Shanghai," a spokesperson said Monday.

China's State Council is currently drafting rules and setting up a board that would help process the listing of Chinese Deposit Receipts or A-shares of big overseas companies onto the Shanghai Stock Exchange.

"It [a Shanghai listing] is something that we haven't ruled out, but it would be logistically impossible for at least a year and a half anyway," he said.

The comments come after LSE Chief Executive Officer Xavier Rolet said Saturday at a conference in Shanghai that it was his "deep hope and secret forecast" that the LSE will be allowed to list on the Shanghai market before the end of 2011. Rolet didn't elaborate.

The LSE spokesman said Monday that Rolet expects the international board to be ready by the end of next year.

Once ready, that board is expected to see listing applications from companies like HSBC Holdings PLC (HBC), Standard Chartered PLC (STAN.LN) and NYSE Euronext (NYX), which have been reported to be interested in listing in Shanghai.

Big Hong Kong companies like the Bank of East Asia Ltd. (BKEAY) and Hutchison Whampoa Ltd. (HUWHY) have also been reported to be keen on listing in the Chinese mainland.

Analysts at Oriel Securities said Monday a that Shanghai listing for the LSE "would provide access to local demand, which is likely to grow faster than in the West."

"The other interpretation is that a local listing would aid a merger or joint venture with an Asian exchange. Such a move would help to offset the relative strategic disadvantages of being geographically confined to the U.K. and more recently, Italy, and not having a derivatives business," Oriel said.

Oriel said LSE's shares "have been languishing in the face of tougher competition from alternative venues and the ongoing dearth of corporate activity" and that "it would be surprising to see much of a rally in the shares until trading volumes increase, which they have not done yet."

Rolet's comments in Shanghai come just two weeks after saying that the LSE plans to establish a pan-European equity derivatives exchange within nine months, pitting itself against more-established European players like NYSE Euronext's Liffe and Deutsche Boerse's (DB1.XE) Eurex.

The LSE, which also runs Italy's Borsa Italiana, has been trying to become a leaner organization with a more diversified business, a crucial strategy in the face of rivals that are eating into the LSE's equities-trading business, which remains its biggest profit contributor.

- By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0) 2078429486, vladimir.guevarra@dowjones.com

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