Analysis: Andersens poised as IT drives Europe towards single stock exchange

The joint venture announced by the London Stock Exchange and Deutsche Borse this week will have far-reaching ramifications for Europe's finance industry - as well as the technology suppliers involved.

Every financial services company in Europe will be affected, along with every company listed on the UK and German stock exchanges. The two stock markets' goal of a pan-European exchange will bring the states of Europe closer together than the common trade and agricultural agreements of the Seventies managed. A common electronic trading system is central to the idea of this particular initiative and the long-term goal of fostering an Exchange Europa.

The conventional wisdom on why these former rivals have suddenly decided to collaborate is that they were forced to by the large investment banks. They want to trade by sector and not have to divide their investments between a handful of European exchanges. Their powerful lobbying played a key role behind the scenes.

The advent of European Monetary Union is also a factor, as it makes a central exchange a lot simpler to implement.

However, the biggest driver behind the timing of the decision is the state of electronic trading. The CEO of Deutsche Borse, Werner Seifert, hinted at the significance of etrading when he cited technology as a rapid enabler of integration. It allows a common price list to be maintained and gives an unlimited amount of traders access to the dealing room floor.

More importantly, it neatly side-steps the thorny issue of where the central exchange should be based, as it creates a distributed exchange with a point of presence in every participating company. This will minimise the administration fees charged for every deal and mean bigger profits for financial services companies.

However, high ideals and high profile announcements will not make the dream of a central European exchange a reality. There are a number of obstacles the two exchanges have to overcome before this happens. Apart from saying that the integration would be straightforward because they share the same software supplier, the alliance gave very little detail on how they would go about setting up this common electronic trading system.

Even giving German and UK dealers access to each other's exchanges is likely to be more problematic than they would have us believe. It is true that their two systems, Xetra and Sets, were both developed by Andersen Consulting, but one is based on a Tandem platform and the other on Digital. This could cause hardware connectivity problems. Even if the LSE and Borse can be integrated in the next five months, the project needs the support of other European exchanges to succeed - and they are not all Andersen's customers.

The project is likely to succeed, however, not because it is technologically simple, but because the commercial will of Europe demands it. It is likely that the two exchanges will be forced to press ahead with the project whatever the cost, which will come as good news to the company chosen to do the systems integration.

Given that Andersen Consulting is already involved, it is top of most people's list to be that systems integrator. Its board can hear the sweet sound of cash registers ringing.