The London Stock Exchange (LSE) is in the process of finalizing an agreed £1.1 billion ($2.1bn) all-share takeover of Borsa Italiana, the Milan stock exchange.

The TimesBusiness is reporting : “The board of the Borsa was locked in a second day of meetings, but unofficial indications were that agreement had been reached. The LSE is prepared to offer 4.9 of its shares for every one in the Borsa.”

That does seem to be a whopping price to pay for the seventh largest exchange in Europe, but clearly Clara Furse is getting her retaliation in first to beat off counter offers from New York or Frankfurt.

The merger will create Europe’s biggest exchange read from the value of companies listed there, with around half of the FTSE Eurofirst 100 listing.

The two exchanges will be owned by one company headed by Clara Furse, LSE’s chief executive. Her Italian counterpart, Massimo Capuano will become her deputy.

We also hear that the Borsa will have five seats on the board to London’s seven, giving the Italians far greater presence than the sizes of the two exchanges would suggest.

London is capitalised at £2.7 billion, against just over £1 billion for Borsa Italiana.

A formal confirmation of the agreed offer could come on Monday morning. It would leave the two New York exchanges in a quandary. The New York Stock Exchange is now merged with Euronext, operator of four continental markets, and Liffe, the financial futures market in London. The merged group has expressed an interest in buying the Borsa but has yet to table a formal offer and will now have to decide if it can trump the London terms.

By diluting the Nasdaq holding from 30 percent to 20, the merger will make it more difficult for the Americans to bid again in January.

Milan and London will continue to be operated separately under the terms of the agreement, but the LSE is expected to concentrate on the benefits of becoming a larger player on the world stage

Clara Furse is also expected to emphasise the attractions of MTS, the government bonds trading platform. The Borsa has already moved to take control of the platform this week, and it could boost the LSE’s capabilities in the derivatives market where it is weak.

“Tommaso Padoa-Schioppa, the Italian Economy Minister, pledged support for a Milan-London link last night, describing it as ‘a very positive accord because it creates a very strong international presence’. ”

With shares in the London Stock Exchange hitting the dizzy heights of £13.92 ($27.56) — Nasdaq’s offer was £12.43 — the exchange is now on the reserve list for the Footsie 100.

If it’s promoted to that elite squadron, its stock would be picked up by all the tracker funds leading to further gains in value. It’s an enviable prospect and would probably ensure the hard-pressed exchange some respite from the constant challenges it has faced in recent years.

As if to emphasise the point, the LSE has just upgraded its technology platform. The new system allows trades to be executed in full in just 10 milliseconds and allows companies a much easier experience for trading in shares and other instruments.

Called TradElect, the new system is one in the eye for bankers’ darling, Project Turquoise, which is yet to be launched.

Here’s how the LSE describes TradElect :

TradElect, the Exchange’s brand new trading system is up and running. TradElect brings unprecedented levels of performance, enhanced functionality and new services to our markets whilst maintaining our exemplary record for reliability.

It allows our customers to trade on one of the fastest, most reliable and technologically advanced equity markets in the world.

Its introduction marks the final and most significant phase of the Exchange’s four-year system upgrade project – known as Technology Roadmap (TRM) - and now delivers a range of key functional and technical enhancements including;

* Increase the speed and efficiency of trading
* Provide the framework for the rapid development of new markets and asset classes
* Enhance the market structure to better support order routing, settlement and clearing
* Extend functionality for order handling, quote management and trade reporting.

These are surely the good times for the LSE and its doughty chief executive, Clara Furse, and chairman, Chris Gibson-Smith.

A new wave of exchange consolidations seems imminent, following Nasdaq’s £1.9bn ($3,7bn) agreed bid for Scandinavian group OMX.

Now energy market, New York Mercantile Exchange, is seeking partners for a possible $7.2bn ($14.2bn) deal going forward. Touted parties include NYSE Euronext, Chicago Mercantile Exchange and Deutsche Borse.

Nasdaq has denied that it could return for a third battle with the London Stock Exchange, but that could change come February since the American outfit already owns nearly 30 percent of LSE shares.

Recently we reported that London Stock Exchange chief executive, Clara Furse, attacked new rival on the block, Project Turquoise — a trading platform being created by seven investment banks — as non-viable.

Furse claimed the rival banks’ platform will not be able to compete with the LSE’s 4p fee from £1000 worth of shares purchased.

Project Turquoise responded, “We are very much on track to be up and running and reduce the total cost of trading for those who buy and sell shares”.

Soon, however, PT’s seven founders, Goldman Sachs, Merrill Lynch, UBS, Citigroup, Morgan Stanley, Deutsche Bank and Credit Suisse, will be joined by another, BNP Paribas of France. Already a formidable alliance, Turquoise now looks a true heavyweight.

Final details of the technology systems to power the platform are close to agreement. If the final result is cheaper trading — and it’s hard to imagine them coming in at a higher price — this will give the LSE a real run for its money.

The kind of complacency that saw London’s Liffe passing to Euronext right under Clara Furse’s nose, must not be repeated here.