The raid, carried out last month, was prompted by a complaint by new marketplace Burgundy, which said it was put at a disadvantage by being denied space for its servers in a data centre owned by US telecoms company Verizon.

Its larger rival Nasdaq OMX and major clients such as banks had been given space in the Verizon center, enabling them to execute super-fast trades, Burgundy said.

Stock exchanges are increasingly relying on contested hedge funds that use algorithms to execute lightning-fast trades, as revenue streams from traditional trading are under pressure from weak markets and fierce competition.

Burgundy Chief Executive Olof Neiglick told Reuters his company had agreed in 2010 to house its servers in the Verizon centre, but the US firm later canceled the deal and it had to move to a location 5 kilometres away.

"We are cooperating fully with the authorities," a Nasdaq OMX spokesman in Stockholm said on Thursday.

Court documents showed the Swedish competition authority had been authorized to raid both Nasdaq and Verizon's Swedish business. A spokeswoman for the regulator confirmed a raid had taken place. Verizon Sweden was not available to comment.

Physical closeness of a trader's computers to those of a stock exchange — a practice known as co-location — can shave fractions of seconds off client orders, giving the super-fast trader an edge over those that are further away.

"It was only a matter of time before the regulators began to look at how people have access to markets in terms of co-location because how close you are to the box can make a vital difference," said Herbie Skeete, managing director at exchange consultants Mondo Visione.

The court documents said KKV, the competition authority, wanted to investigate whether OMX had applied pressure on Verizon or threatened to punish Verizon if the telecoms company made an agreement with one of its competitors.

"According to the KKV, OMX and Verizon's actions mean that Burgundy risks being shut of the market in bourse trade with Nordic securities," the document said, adding there was reason to believe that" OMX's actions amount to a violation of rules on abuse of a dominant position".

The competition authority was allowed to look for evidence such as e-mails, notes, letters, faxes and meeting minutes.

Competition between exchanges has become intense, with this year seeing a flurry of cross-border deal attempts by bourses eager to cut costs and diversify in the face of fast-eroding market shares in their traditional businesses.

Mondo Visione's Skeete said other smaller players were also likely to challenge the practices of their bigger rivals.