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UPDATE 2-London Stock Exchange denies CEO being forced out

* Responds to activist TCI's call for chairman to step down

* TCI says CEO Rolet being forced out, wants him to stay

* LSE says regulator fully informed of CEO plans (Adds details, background, BNP Paribas comment)

LONDON, Nov 6 (Reuters) - London Stock Exchange Group rejected claims by leading shareholder and activist hedge fund TCI that it was forcing out Chief Executive Xavier Rolet, saying on Monday it had followed a "proper governance process".

The exchange was responding to a letter TCI wrote to Chairman Donald Brydon calling on him to stop the search for a new chief executive immediately and resign, with the fund saying it had lost confidence in him.

TCI Fund Management, run by Chris Hohn and the LSE's fourth-biggest investor with a more than 5 percent stake, said Rolet's departure would damage shareholder value and it instead wanted his contract extended to 2021.

LSE announced on Oct. 19 that Rolet would step down at the end of next year, just under a decade after he took charge and transformed the company with a string of deals.

LSE said on Monday that regulator the Financial Conduct Authority had been kept informed throughout the process of its plans to hire a new CEO, that Rolet was helping pick his successor and was focused on his role as CEO.

TCI did not immediately respond to an emailed request for additional comment.

Rolet, who joined the group from Lehman Brothers, said last year that he would leave if a merger with rival Deutsche Boerse went through. But the collapse of that deal in March meant the 57-year-old Frenchman opted to stay on for longer.

TESTING TIMES

Rolet's departure comes at a critical time for the LSE as the exchange bids to win a slice of Saudi Aramco's initial public offering, expected to be the biggest listing in history. Rolet is also liaising with governments and regulators over the impact of Britain's impending exit from the EU.

Chief among those challenges is that posed by rivals such as Deutsche Boerse, which is seeking to profit from any step by the European Union to move some clearing business away from London.

LSE-owned LCH currently dominates the clearing of euro-denominated financial instruments in Europe, but the future location of such trading is uncertain following Brexit.

TCI said on Friday it had met Brydon and a senior independent director last week and did not get a satisfactory answer for Rolet's departure. It said it would call for an Extraordinary General Meeting if Rolet was not retained as CEO.

Andrew King, head of European equities at BNP Paribas Asset Management said he had been "disappointed but not entirely surprised" by Rolet's retirement announcement, but "hadn't got the impression he had been forced out by the board."

Rolet has led a period of strong growth for the company, broadening the exchange's focus beyond share trading into derivatives and data through a number of acquisitions, including LCH and global indexes firm Russell.

Under his leadership, the LSE's market value has risen from less than 1 billion pounds to almost 14 billion pounds ($18.4 billion).

The move by TCI is not the first time it has turned up the pressure on an exchange's board. Last year, it backed plans for a merger of Deutsche Boerse and the London Stock Exchange, 11 years after winning a high-profile campaign to prevent a deal.

In 2005, TCI was a shareholder in Deutsche Boerse and was convinced the German exchange's stock would suffer if it bought its British rival. Its campaign was so intense that Deutsche Boerse's CEO at the time, Werner Seifert, was forced out. ($1 = 0.7631 pounds)

(Noor Zainab Hussain reported from BENGALURU; Editing by Louise Heavens and Keith Weir)