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UPDATE 3-CEO quits as LSE tries to draw line under management row

* CEO Rolet had been due to step down at the end of 2018

Shareholder TCI had accused chairman of pushing CEO out

* Chairman signals he won't seek re-election in 2019 (Adds analyst comment)

By Huw Jones

LONDON, Nov 29 (Reuters) - London Stock Exchange CEO Xavier Rolet is stepping down immediately and its chairman will not seek re-election, as the exchange tries to draw a line under a row with a top shareholder over management succession.

Rolet had previously said he would leave at the end of 2018, but activist hedge fund TCI accused Chairman Donald Brydon of pushing him out and called a shareholder meeting to try to reverse the decision and oust Brydon.

The row - coming at a tricky time for the LSE as it risks losing a chunk of its derivatives clearing business to erstwhile merger partner Deutsche Boerse due to Brexit - had dragged in the Bank of England.

Rolet's departure after 8-1/2 years in charge could trigger fresh speculation that a rival exchange such as ICE could bid for the LSE, though analysts say any mega-bourse deal would face intense scrutiny by competition authorities.

In a statement issued by the LSE on Wednesday, Rolet said there had been a "great deal of unwelcome publicity" surrounding his departure "which has not been helpful to the company."

"At the request of the board, I have agreed to step down as CEO with immediate effect. I will not be returning to the office of CEO or director under any circumstances," he added.

The LSE said Brydon had also indicated he would not stand for re-election at the company's annual general meeting in 2019, and that Chief Financial Officer David Warren would replace Rolet on an interim basis.

TCI had no immediate comment on the announcement.

The LSE said Brydon and the board believed that in 2019, under a new chairman, "it would be in shareholders' interests to have a new team at the helm to steer the future progress of the company."

However, UBS analyst Michael Werner said Rolet's immediate departure created significant uncertainty over future strategy.

"With concerns increasing about the ability of (LSE unit) LCH to maintain share of the over-the-counter clearing business in a Brexit scenario, the timing of Mr. Rolet's departure could pose a challenge for the firm defending its market share from Deutsche Boerse," Werner said in a note to clients.

UBS has a "neutral" rating on LSE shares.

At 0945 GMT, the stock was down 2.2 percent at 3,716 pence, in a UK blue-chip index 0.5 percent lower. LSE shares have risen around five-fold under Rolet's tenure.

'MYSTIFIED'

Rolet is credited with turning the LSE into a diversified exchange group by acquiring a controlling stake in LCH, one of the world's biggest clearing houses, and expanding the bourse's activities in stock indexes.

But the Frenchman and former investment banker was unable to seal a merger with Deutsche Boerse, the exchange's third attempt at an Anglo-German tie up.

TCI had called on the Bank of England (BoE) and the Financial Conduct Authority to replace Brydon.

But in a strong rebuff to TCI founder Christopher Hohn, BoE Governor Mark Carney said on Tuesday the LSE's succession plans should remain in place and that he was "mystified" by the spat, effectively sealing Rolet's fate.

The LSE said it had now asked TCI to withdraw its request for a shareholder meeting.

"If TCI does not withdraw its requisition in full, the board intends to publish a shareholder circular confirming among other things the date of the general meeting at which the proposed resolution or resolutions will be put," the LSE said.

The circular would be published no later than Nov. 30.

(Additional reporting by Simon Jessop; Editing by Louise Heavens and Mark Potter)