The London Stock Exchange Group will sell Borsa Italiana to Dutch exchange Euronext for €4.3bn (£3.9bn) in a deal that should pave the way for its multibillion takeover of data provider Refinitiv.
LSEG put Borsa Italiana up for sale to persuade European regulators that its $27bn (£20.8bn) takeover of Refinitiv should not be blocked on competition concerns.
Swiss stock exchange SIX and German's Deutsche Boerse were also reportedly in the running to buy the Italian business.
The deal is expected to complete in the first half of 2021, following approval from the European Commission, authorities in Italy and both sets of shareholders.
Borsa Italiana comprises the Milan stock exchange and MTS, where bonds worth more than €100bn are traded every day. However, MTS makes the deal politically sensitive as the Italian government's €2.6 trillion debt is handled through the platform.
This was highlighted in 2016 when former Italian finance minister Pier Carlo Padoan met with the bosses of the LSE and Deutsche Boerse in Rome to make clear that MTS should not be touched if the two were to merge. A deal was eventually blocked, however.
At the time it was viewed that a sale could jeopardise the LSE's relationship with the Italian authorities, dent its Italian operations which made up about 25pc of the group’s revenue, and require parallel regulatory approval processes in other jurisdictions.
The FTSE 100 company's chief executive David Schwimmer argued that the substance of the EU's concerns over competition had now been addressed. He said: "We continue to make good progress on the highly attractive Refinitiv transaction and we are pleased to have reached this important milestone.
"We believe the sale of the Borsa Italiana group will contribute significantly to addressing the EU's competition concerns. The Borsa Italiana group has played an important part in LSEG's history. We are confident that it will continue to develop successfully and contribute to the Italian economy and to European capital markets under Euronext's ownership."
LSEG will use the proceeds from the deal to reduce its debt.
Shares closed 0.4pc higher at £88.80.