Euronext, the European exchange operator, is set to reject a proposal from a powerful French lobby group that it break off merger talks with the New York Stock Exchange to tie up with rival Deutsche Börse.

If Euronext accepts the plan, Deutsche Börse and activist hedge fund The Children's Investment would become its two largest shareholders. Both have lobbied Euronext for a full merger with the German exchange and are in favour of dropping the transatlantic deal. The proposals were contained in the Lachmann report, published last Thursday. It was commissioned in June by Paris Europlace, a lobby group of French banks and investors, to investigate the implications of a merger. The report was overseen by Henri Lachmann, president of the board of Schneider Electric. He recommended that Euronext break off negotiations with the NYSE and consolidate in Europe first. He said Deutsche Börse should sell its equity trading business to Euronext in exchange for shares, making it the single largest shareholder in Euronext. After completion, the European group could then resurrect its deal with the NYSE, Lachmann added. Neither exchange has the obligation to implement the proposals. Euronext said: "We welcome the recommendation that Deutsche Börse contribute its cash equity business to Euronext in exchange for Euronext shares." This comes as the Office of Fair Trading, the UK regulator, cleared the deal between Euronext and the NYSE today. The OFT had examined the deal over its impact to UK customers, involving issues such as listing and equities trading. The regulator said in a statement: "No relevant competition concerns were raised."