UK minister plays down German claim to stock exchange "crown jewels"

(Repeats story that ran late Tuesday; no change in text.)

* $27 bln deal in balance as German politicians demand HQ

* UK City minister says deal agreed has London HQ

* Kirby says government following deal closely

By John O'Donnell and Andreas Kröner

FRANKFURT, Feb 21 (Reuters) - Britain's government played down suggestions the London Stock Exchange (Other OTC: LDNXF - news) 's headquarters could move to Frankfurt after merging with Deutsche Boerse, but cautioned it was watching the deal closely.

"We are not complacent about the position of UK financial services companies," Simon Kirby, the minister responsible for the City of London (LSE: CIN.L - news) , told lawmakers on Tuesday during a parliamentary debate about the stock exchange's future.

Under the terms of a merger deal struck before Britain voted to leave the European Union, Deutsche Boerse Chief Executive Carsten Kengeter is due to head the combined group, with London the home of the main holding company and its joint board.

But a number of German politicians have made it clear they now want the headquarters to be in Frankfurt to back the $27 billion merger, which would create the biggest stock market in Europe.

Kirby said the deal that was agreed named London as the headquarters and that this could not be changed without the backing of 75 percent of shareholders, adding that British regulators also had to approve the merger.

"We are following it closely and we are in touch with the regulators," he said.

NATIONAL INTEREST

During the debate, Bill Cash, a eurosceptic Conservative lawmaker, criticised the merger and said Britain stood to lose out if executive power shifted from London to Frankfurt.

He said keeping the LSE headquartered in London was a matter of national interest and the British government must dig in.

"It's not a normal commercial operation. This is much more about the acquisition of the crown jewels," Cash, who chairs the House of Commons' European Scrutiny Committee, told Reuters ahead of the debate in a telephone interview.

"That's a matter of national interest. There is no conceivable reason why it can be in our national interest to have it transferred to Frankfurt," he said.

Cash said he hoped the debate would trigger wider discussion about an issue that has received little attention from the British media or the government so far as preparations for divorce talks with the European Union hog the headlines.

The meeting itself, attended by a small group, was overshadowed by a larger discussion in the House of Lords, the upper house of the British parliament, on a bill that will formally begin divorce talks with the EU next month.

If the British authorities, including the Bank of England, were to firmly oppose moving the LSE headquarters to Frankfurt, it would put London on a collision course with Berlin and potentially torpedo the merger.

The location of what will be Europe's biggest stock exchange has symbolic and operational significance, with regulators keen for oversight of its derivatives processing business.

Advisers and company executives are divided about whether London's status as the main headquarters can be changed. Some people involved argue it could require a new vote by shareholders of both exchanges, which could upset the deal.

LSE chief executive Xavier Rolet recently insisted that "the deal is set". Deutsche Boerse (IOB: 0H3T.IL - news) chief Kengeter described the question of a move only as "speculative".

However, Britain's departure from the European Union may isolate London as Europe's financial centre and that has turned the tables in favour of Frankfurt.

"The reasons for the headquarters being in Frankfurt are crystal clear," Thomas Schaefer, the finance minister of the state of Hesse, home to Frankfurt and Deutsche Boerse, told Reuters earlier this month.

One of the chief concerns for EU regulators is that London-based LCH Clearnet, majority owned by the London Stock Exchange, clears more than half of all interest rate swaps traded around the world, many of which are in euros.

That means as soon as Britain leaves the European Union, the clearing and regulation of euro transactions will be outside the bloc. (Writing by John O'Donnell; editing by David Clarke)