London - 26 February 2007

Under the UK's takeover rules, Nasdaq's bid for the London Stock Exchange (LSE) lapsed on February 10, 2007. The two exchanges now have to work out how to move on. New research from TowerGroup recommends the LSE pursue interoperability, a pragmatic and measured way to move in the direction of consolidation.

TowerGroup identifies the lapsed bid as evidence that LSE shareholders and stakeholders recognize that the LSE is the only major international securities exchange operating under a principles-based, financial regulatory structure.

The failed bid leaves Nasdaq with the challenge of extracting value from its significant minority investment of 29.16 per cent.
Conversely, TowerGroup believes the lapsed bid provides the LSE with an opportunity to determine if and how it can work with Nasdaq to the mutual benefit of the two exchanges.

Adopting a strategy of interoperability is a mutually cooperative, lower-risk approach to consolidation than acquisition, which carries a reputational risk if it fails. However, interoperability for the LSE offers the distinct business and technical benefits as a mechanism for the consolidation of exchanges without losing the independence a takeover removes.

TowerGroup predicts that interoperability will allow the LSE:

* To maintain independence, identity, brand and development strategies.
* A cooperative and lower risk approach.
* To avoid or mitigate the risk involved with takeovers such as the business uncertainty, the financial, regulatory,
reputational and jurisdictional risks of cross border takeovers.
* Assess the extent to which it may work together with other exchanges.
* To make technology investments and share the risks with other exchanges.
* Less uncertainty for shareholders and stakeholders.
* Access to other exchanges for stakeholders.

The TowerGroup research viewpoint titled, "Interoperability: A route to salvation for Nasdaq and the LSE following Nasdaq's lapsed bid" by Bob McDowall, a senior Analyst at in the TowerGroup UK office, highlights the opportunities and threats for securities exchanges, and identifies the alternatives to takeovers in order to continue consolidation of the securities markets.

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