London Stock Exchange, Deutsche Börse Confirm Merger Discussions

In a statement, LSE confirmed the merger talks, which would see Deutsche Börse shareholders own 54.4 percent of the combined entity, with LSE shareholders holding the remaining 45.6 percent.

"The Boards believe that the potential merger would represent a compelling opportunity for both companies to strengthen each other in an industry-defining combination, creating a leading European-based global markets infrastructure group," the LSE said in a statement.

Should a merger be completed, key parts of each exchange such as LSE's LCH.Clearnet and Deutsche Börse's Eurex clearing divisions, would continue to operate under current brand names, with "a unitary board composed of equal numbers of LSE and Deutsche Börse directors".

"This potential merger would likely be a cost-savings play," said Rob Boardman, European CEO of brokerage ITG, in a separate statement. "LSE has long admired Eurex and aspired to a stronger derivatives strategy. For Deutsche Börse a deal would likely offer cost savings as well as access to LSE's diverse global distribution, index and post-trade businesses."

A merger between LSE and Deutsche Börse was first mooted and then scrapped in 2000 following a rival bid for LSE from OM Gruppe. A $1.8 billion (£1.3 billion) bid from Deutsche Börse for LSE was rejected in 2005.

Following the announcement, shares in LSE and Deutsche Börse rose 17 percent and seven percent, respectively.