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It could also run into hurdles in Washington as U.S. lawmakers and regulators consider whether they are prepared to allow the citadel of American capitalism to fall into foreign hands, although there has been virtually no public criticism in the United States as yet.

The companies said on Wednesday they are in "advanced talks" to join forces and create an exchange operator with unprecedented global reach and -- most worrisome for regulators -- a dominant grip on Europe's lucrative derivatives markets.

While executives from Frankfurt and New York have hatched a tentative agreement, there are still obstacles that must be overcome -- the same ones that scuppered past attempts to combine Deutsche Boerse with Paris-based Euronext.

"These key questions are not yet resolved," a senior German financial source told Reuters on Thursday.

A financial regulator from the German regional state of Hesse -- which must approve the deal -- said it would seek to preserve the interests of Frankfurt as a financial center. Likewise, French regulator AMF said it would be vigilant about preserving Paris' status.

Once notified, European Commission competition authorities initially have 25 days to decide whether to approve a deal but can also seek an in-depth investigation that can take some months including extensions.

"The biggest danger of a failure for the deal at this point is antitrust concerns in the derivatives market, because Eurex and Liffe would have a market share of more than 90 percent in Europe," said Stefan Brugger, a fund manager at Union Investment in Frankfurt. "We consider these concerns as overdone," he added.

U.S. politicians were unusually quiet about the deal that would see the Big Board bought out and would put more than 40 percent of U.S. options trading under one roof.

New York Mayor Michael Bloomberg, the first major U.S. public figure to comment, said he supported the plan. "It's going to give us access to Europe, and the Europeans access to the States in a way that our competitors, like London, will not have," he told reporters in New York.

While U.S. Representative Carolyn Maloney of New York said she supported the deal, five senior lawmakers with market oversight duties declined to comment. And U.S. Commodity Futures Trading Commission Chairman Gary Gensler declined to comment.

In another sign that barriers remain in Europe, French Economy Minister Christine Lagarde said she was watching negotiations closely with an eye on market stability and security, and the development of value on French soil.

DERIVATIVES SPAT

The companies have released few details about the proposed merger, which would see Deutsche Boerse's shareholders in the driving seat with 60 percent control and create an exchange behemoth with more than $20 trillion in annual trading volume.

The combination of Deutsche Boerse's Eurex and NYSE Euronext's London-based Liffe platforms would dominate trading in interest rate, fixed-income, and equity- and index-based products in Europe.