LSE to launch Baikal trading platform with Lehman Bros

The London Stock Exchange has fired a broadside in the battle for domination in European shares trading, as it prepares to launch an electronic trading platform with Lehman Brothers which will go head-to-head with rivals from September.

The LSE, which has been under pressure from investors to respond to the increasingly competitive market in Europe, has teamed up with the Wall Street investment bank to launch a platform called Baikal, after the world's deepest lake. A spokesman for the exchange said yesterday: "The LSE is actively responding to competition. This is just one of the things we are working on."

Baikal will allow traders to use complex algorithms to anonymously trade large batches of shares across 22 European venues. Shares in the LSE soared on Wednesday amid speculation that it was preparing to reveal its plan to combat competition, as well as talk of a bid from the Chicago Mercantile Exchange. However, the stock retreated yesterday and closed down 12.9 per cent at 828.5p.

Baikal will compete with four rival platforms in Europe. The electronic broker Instinet set up Chi-X last year, and has already made inroads into the British market. Baikal faces further competition from three more venues which are expected to go live in September. The first to launch is Turquoise, backed by nine investment banks. This will be followed by BATS Trading and another set up by the transatlantic market Nasdaq-OMX. A spokesman for Turquoise said: "We welcome the competition, although details are quite sketchy and I'm sure the marketplace is looking to learn more about it."

The LSE's platform will be set up as an independent company, although it is not clear when it intends to go live.