The news that the Financial Services Authority led by Callum McCarthy is to face scrutiny by the National Audit Office is causing frustration in some quarters of the City of London.

Leaving aside a number of recent decisions, which have placed the FSA on the back foot, McCarthy believes he needs City backing in his attempt to keep regulation of London’s major markets, like the London Stock Exchange, within London’s own rules.

He believes the notion of regulation of an exchange, whether Liffe or the LSE, transferring to where the assets are owned will fail on “legal, practical and political grounds”.

Alex Brummer in the Daily Mail writes: “The idea, for instance, of the Liffe market being regulated from Paris where Prime Minister Dominique de Villepin believes it his job to reorganize the board of Airbus maker EADS — is ludicrous.”

Sir Callum McCarthy joined the FSA in September 2003 from the Office of Gas and Electricity Markets where he was Chairman and Chief Executive. He had previously held senior positions in Barclays Bank, BZW and Kleinwort Benson, as well Department for Trade and Industry.

It’s being reported that over the weekend, John Thain, CEO of the New York Stock Exchange, raised the prospect of starting up his own London exchange directly to compete with the LSE.

The move would be made, apparently, if a merger with Euronext does not deliver the hoped-for new business.

Now that would set the cat among the pigeons.

As reported on Sunday, the supervisory board of Deutsche Borse has announced new concessions in its continuing bid to merge with Euronext.

The German exchange’s initial offer, valuing the pan-Continental conglomerate at around €8 billion (£5.5 billion), was rejected by the Euronext board, which opted for an agreed merger with the New York Stock Exchange.

After a board meeting last night Deutsche Borse presented a new set of proposals designed to create a federal structure, with power devolved to the constituent exchanges at Lisbon, Amsterdam, Brussels and Liffe, the London financial futures market.

The financial side of the bid remains the same, however, but a statement claimed that share-price movements since the terms had been announced meant that it was now higher than the NYSE offer.

The Times (London) reports:

The latest German offer proposes:

* A new Dutch company to own Euronext and the Börse.
* Regulation of the Euronext exchanges to remain where it is at present.
* The board to be drawn equally from both sides. The earlier boardroom structure strongly favoured the Germans.
* Divisional management to be split so that information services were run out of Amsterdam, equities from Paris and derivatives from London and Frankfurt, where the Börse already has Eurex, a strong derivatives operation.
* Leadership split between Amsterdam, Frankfurt and Paris.
* The Euronext trading platform NSC to be used for equities, while Liffe would use Eurex and abandon its Liffe.Connect platform.
* The Borsa Italiana in Milan, which is already negotiating to join Euronext, would be brought on board shortly.

We thought the Teutonic giant wouldn’t stay comatose for long. Spurred on, no doubt, by the dubious support of French President Jacques Chirac, Deutsche Borse has begun to think the unthinkable on a challenge to the American takeover of the pan-Continental exchange conglomerate, Euronext.

On Monday, the supervisory board of the German exchange meets to consider new proposals in the matter of Euronext. It’s thought the fresh suggestions include moving some operational areas from Frankfurt to Paris to assuage the nationalistic sensitivities of the French.

They would also embody a higher cash offer than previously made, reducing the proportion of shares in the bid.

If the board approves the plan, Deutsche Borse will place a new bid for the Paris-based company on the table. Some shareholders in Euronext are known to favour a European solution, but NYSE may well be pushed to up its offer. This is not over yet.