Borse Dubai has not been asked to reduce its stake in London Stock Exchange (LSE) to facilitate a merger between the LSE and the Toronto share market operator TMX, a source familiar with the matter said.

Borse Dubai, which holds a 20.6 per cent stake in the LSE and is owned by the ruler of the Gulf emirate, would become the single largest shareholder in the merged entity, with an 11.3 per cent stake if the deal is completed.

The proposed deal between the two exchanges has run into foreign ownership concerns in Canada, which plans to review the deal under the terms of the Investment Canada Act.

'Borse Dubai hasn't been asked by any party to trim its stake in LSE,' the source said, speaking on condition of anonymity.

The Qatar Investment Authority (QIA) owns a 15 per cent stake in LSE and the two combined would end up with a roughly 20 percent position in the new combined company.

Ontario's finance minister last week voiced concern about the ownership issue, saying the exchange was a strategic asset.
 
'We do business with the Middle East,' Dwight Duncan was quoted as saying. 'I am just not sure I want them owning our stock exchange.'

On Tuesday, a UAE newspaper said Borse Dubai would consider selling down its stake in order to reduce its ownership in the joint exchange to less than 10 percent, citing a senior but unnamed Borse Dubai official.

Borse Dubai's Chairman Essa Kazim declined to comment on the report when contacted by Reuters. A spokesman for the LSE said the merger would deliver 'clear benefits' to Canada and capital markets in that country.

'TMX and LSE Group have prepared carefully for our work with Industry Canada as they review the merger agreement under the Investment Canada Act,' he said.

The UAE newspaper report said Borse Dubai executives were also not completely confident that the deal between the LSE and TMX would produce long-term value. One executive said Borse Dubai would only sell if it could find a strategic buyer at the right price.

'We're not going to sell down just to make it easier for Xavier Rolet (the LSE chief executive) to do the deal,' the exchange executive told The National newspaper.

Canada and the UAE are embroiled in a diplomatic spat over additional landing rights for UAE carriers, including Emirates airlines, in Canada. Ottawa has refused extra rights, prompting the UAE to bar Canadian troops from a military staging camp in the Dubai desert.

The UAE ratcheted up the pressure by imposing visa requirements on Canadians travelling to the Gulf Arab state as of last month.-Reuters