FRANKFURT • German police and prosecutors investigating possible insider trading by the head of Deutsche Boerse have searched the office and apartment of the man leading a planned €25 billion (S$38 billion) merger with the London Stock Exchange.

State prosecutors said the investigation centres on whether secret merger talks with the London Stock Exchange were under way when Deutsche Boerse chief executive Carsten Kengeter bought shares in his company in December 2015.

The allegations coincide with growing resistance in Germany towards plans to put the merged group's main headquarters in London, opposition that has gained pace as Britain prepares to leave the European Union.

London is set to become the home of the main holding company of the merged exchanges and the joint board, led by Mr Kengeter, would also be based there.

Mr Kengeter bought shares worth €4.5 million in his company using an option he was given as part of his contract, just over two months before the merger talks were publicly announced.

Prosecutors said they suspected that he knew of the possibility of a merger when he bought the shares, and that this, if proven, would be insider trading under German law.

"The initial suspicion results from talks held by the management of Deutsche Boerse and the London Stock Exchange between July/August and December 2015 that centred on a possible merger of the two companies and the question of where the holding company could be based," prosecutors said.

There was no immediate comment from Mr Kengeter and a spokesman for Deutsche Boerse declined to comment.

Deutsche Boerse chairman Joachim Faber backed Mr Kengeter, saying the prosecutor's suspicion was "groundless". He said it was only in the second half of January that both companies agreed to begin talks - about four weeks after the purchase in December.

The London Stock Exchange said it welcomed the chairman's support for Mr Kengeter and that it looked forward to completing the planned merger between the two exchange operators.

REUTERS