The London Stock Exchange and Frankfurt's Deutsche Boerse are to merge and create Europe's largest stock exchange, paving the way for a global equity market. Responding to increasing competition from other exchanges and the need for more liquidity, the new exchange, to be called iX-International, will combine almost all of the two exchanges' business and will link up with Nasdaq, providing a giant marketplace for European growth stocks. The 50-50 partners said Milan and Madrid would join the exchange early next year, and others could sign up soon. The market will be the world's second-largest, after the New York Stock Exchange. Don Cruickshank, chairman of the London Stock Exchange and proposed chairman of iX, said: 'These transactions mark a major step forward. They provide us with the opportunity to build a global market.' Deutsche Boerse chief executive Werner Seifert, who will be chief executive officer of iX, said the merger would result in much lower stock trading spreads, given the significantly higher liquidity. High liquidity is becoming vital as demographic pressures, particularly in Europe, have serious implications for the long-term liabilities of pension funds. Global deregulation and liberalisation have also meant that stock exchanges need to boost accessibility to a wider range of investors as well as to companies seeking quotation. The two exchanges said they believed the rapid consolidation of the securities industry would be replicated among stock exchanges and eventually lead to a single global market. 'In particular, as worldwide securities markets become increasingly homogenous and competitive, the current number of exchanges is not expected to remain viable,' the two exchanges said. 'In consequence, exchanges worldwide are reviewing their ownership structures and exchanges in Europe have begun the process of consolidation. 'As a result, Deutsche Boerse and London Stock Exchange believe that the merger will provide a well-regulated single trading platform for all European securities and through the joint venture with Nasdaq provide a basis for developing a global market.' The stock exchanges of Paris, Amsterdam and Brussels are also planning to merge to form Euronext, but the iX exchange will be much larger, trading companies with a combined value of about 6.5 trillion euros (about HK$46.18 trillion). The present shareholders of the London Stock Exchange and Deutsche Boerse will own iX equally, but Deutsche Boerse's 50 per cent share in Clearstream, a Luxembourg settlement firm, will be excluded from the deal. CrestCo, the British clearing and settlement house, will also continue handling trades, but Deutsche Boerse and the London exchange said they would back plans for a central counter-party system so low-cost, straight-through processing could be provided as soon as possible. The two sides have agreed, however, to adopt Deutsche Boerse's highly regarded Xetra electronic trading platform as the new system for all the iX cash markets, and have pledged that all European equity trading will ultimately be done in euros. Adopting the Xetra trading platform is expected to reduce costs and simplify the information technology requirements of iX trading. 'Especially smaller trading firms will benefit from Xetra's proven track record in providing remote access,' Mr Seifert said. 'Retail investors will benefit from a wider choice of products. IX will provide a level playing field for all market participants.' The Nasdaq-iX joint venture is aimed at developing a market for pan-European high-growth equities. It will be 50 per cent owned by Nasdaq Europe and 50 per cent by iX, although it will carry the Nasdaq name.