The London Stock Exchange (LSE) is in talks over a possible merger with Borsa Italiana.
It is the LSE's latest attempt to head off expansion of the combined New York Stock Exchange and Euronext
NYSE-Euronext, which had held talks with Borsa last year, made a counter bid but was turned down by Borsa, a source said.
The source said the LSE-Borsa talks were at an advanced stage and that Borsa's chief executive, Massimo Capuano, would outline an agreement to board members at a meeting today starting at 1pm.
"It's heading towards a partnership in which Borsa has a minority position but maintains its autonomy," the source said.
In another sign a deal could be close, Borsa Italiana has exercised an option to buy Euronext's stake in MBE, which controls European bond trading platform MTS, NYSE-Euronext said.
By buying full control of MTS, Borsa Italiana would bring an international asset to an agreement with the LSE.
Market watchers expect Deutsche Borse could also bid for the Milan bourse, which is a rare merger target in Europe.
The pace of consolidation has accelerated following the demutualisations and public listings of exchanges in the last few years. Borsa Italiana signalled that it would look for partners last year.