The fate of the London Stock Exchange is set to be decided by hedge funds, because alternative investors have increased their stakes in the exchange over recent weeks, and now own more than 25% of its shares.

Hedge funds own sufficient shares to give Nasdaq, which launched a £2.9bn (€4.3bn) hostile takeover bid for the LSE three weeks ago, a majority stake should they sell. Nasdaq owns 28.8% of LSE stock, making it the largest single shareholder. Heyman Investment Associates, led by corporate raider Samuel Heyman, last week increased its ownership of the LSE through derivatives to 9.13%. It is the second-largest shareholder. Hedge fund Kinetics Asset Management is the third-largest share owner with 6.4%, when its shares are combined with those of its sister company, Horizon Asset Management. Deephaven Capital Management, Sisu Capital, Citadel Investment Group, GLG Partners and Cheyne Capital complete the other hedge fund shareholders. Deephaven is exceptional in that it has reduced its stake from almost 3% since Nasdaq's hostile bid on November 20. In recent weeks, hedge funds have been increasing their holdings, snapping up contracts for difference and total return swaps based on LSE stock at around 1300p, in the hope that Nasdaq will improve its offer of 1243p a share. The LSE took just six hours to reject Nasdaq's 1243p bid, saying it "undervalues the company and fails to reflect its unique strategic position and powerful earnings". Bob Greifeld, Nasdaq chief executive, immediately moved to quell speculation that the exchange might raise its bid, insisting the offer is firm at 1243p. Nasdaq later confirmed it plans to raise as much as $5.8bn (€4.4bn) to fund the deal. Nasdaq can only increase its offer if a rival bidder emerges or the LSE's board recommends a higher price. The US exchange has until December 18 to present the full terms of its proposal to the LSE.