HKEx's ambitious 32 billion $39 billion unsolicited bid for its London rival, which runs the London and Milan exchanges, was formally rejected less than 48 hours after the offer was proposed late Friday.
The board of the British bourse said HKEX's approach on Wednesday had problems in its "strategy, deliverability, form of consideration and value".
LSE shares were trading up 1.3% at 7,352 pence after the statement, little changed from earlier levels.
The source said a higher bid by the Hong Kong exchange or going hostile was unlikely to succeed because its proposal was "just too weak on every fundamental point".
The HKEX had argued on Wednesday that a deal would create a combined group "ideally positioned to benefit from the evolving global macroeconomic landscape, connecting the established financial markets in the West with the emerging financial markets in the East, particularly in China".
Shares in the LSE, which also owns the Milan stock exchange and the Russell Indexes in the US, rose 6% on the news. The London exchange said it remained committed to its acquisition of financial data provider Refinitiv.
"The Board of HKEX had hoped to enter into a constructive dialogue with the Board of LSEG to discuss in detail the merits of its proposal and are disappointed that LSEG has declined to properly engage", the statement said.
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The People's Daily piled it on following LSE chairman Don Robert's strong rejection of the bid, issuing last Friday a laundry list of geopolitical and business reasons why the LSE finds the US$36.8 billion (S$50.5 billion) proposal wanting. The article said: "Some people in Hong Kong still have a negative view towards integrating into the development of the nation, as they don't see what opportunities it brings to Hong Kong".
Hong Kong Exchanges and Clearing's (HKEX) offer requires the LSE to ditch the Refinitiv purchase.
HKEX said it meant to apply for a secondary listing of its shares on the LSE if the deal went through.
'This (rejection) certainly makes it clear that even if the HK exchange were to reconsider the terms of the transaction, it shows fundamentally the LSE board would prefer to go down the Refinitiv route, ' said Michael Werner, analyst at UBS.
"An acquisition of the LSE would see a Chinese company acquire the primary equity markets of both the United Kingdom and Italy, as well as key infrastructure for European debt markets". They pointed to the links between HKEX and China. Half of the HKEX board is directly appointed by the Hong Kong government and an appointment of a new chairman has to be approved by Hong Kong's CEO Carrie Lam.
"We value our mutually beneficial partnership with the Shanghai Stock Exchange which is our preferred and direct channel to access the many opportunities with China", the letter said.
One of the most prominent exchange bankers, Silver worked on LSE's takeover of Borsa Italiana in 2007 when at Morgan Stanley, and represented London Metal Exchange when HKEX bought it in 2012.