Liffe says it's seen the future, and it is not iX

Williamson throws down a challenge to traditional exchanges with launch of equity futures
Click to follow

They are all begging him to join them. But Brian Williamson, chairman of Liffe, the London futures exchange, would rather beat them.

They are all begging him to join them. But Brian Williamson, chairman of Liffe, the London futures exchange, would rather beat them.

While Don Cruickshank, his opposite number at the London Stock Exchange, counts the cost of the failed iX merger with Frankfurt, Mr Williamson yesterday provided an illustration of why he thinks there are better ways of delivering what customers want than trying to merge old-style exchanges.

From the end of January 2001, Liffe will offer a series of stock specific futures in 15 of the big international stocks. These, he says, will provide investors, wholesale and retail, with the ability to buy and sell exposure to the big global index heavy stocks like AT&T, Cisco of the US, Britain's Vodafone and HSBC as well as sought after Continental European stocks like Alcatel, Deutsche Telekom, and Shell. All this on-line and for a third of the cost, and with none of the hassle of trading through the fragmented cash markets.

The message yesterday from Mr Williamson was clear. Forget this nonsense about trying to harmonise dealing systems, cultures and regulation, and at the same time ensure that the bureaucrats keep their jobs. If investors, big or small, want to get a piece of Cisco or Nokia at the click of a mouse, technology plus derivatives provide an easier way of giving it to them than trying to force the Exchange turkeys to vote for Christmas.

If successful, the futures will then be progressively rolled out across other stocks for which there is strong international demand. Ultimately, Liffe has the kit and the ambition to take on the big stock exchanges in the underlying cash markets, although that is some way off.

"At a stroke we will remove the settlement costs from the equation ... for the first time there is a real chance of starting off a revolution in trading," an irrepressible Mr Williamson said.

The Liffe chairman's fast expanding City fan club says that yesterday's initiative shows precisely why Mr Williamson is the man to dig the LSE out of its mire. But it also shows why merging or taking over the LSE is the last thing on his mind.

Mr Williamson was brought in more than two years ago when Liffe lost the flagship German Bund contract to Frankfurt's Eurex. He slashed Liffe's bloated cost base, closed the open outcry pits and switched to electronic screens. He is barely halfway through his campaign to re-invent Liffe as a technology provider. He does not want the hassle of sorting out the fractious London Stock Exchange.

Mr Williamson argues that Liffe Connect could provide the LSE with the way into a far broader customer base, as well as putting equities and equity derivatives together on the same dealing screens. "You can actually get there without having to merge," he said.

He is a great believer in London and its superiority over Continental European financial centres. But he is also convinced that London's strength is in being open and international rather than building inward-looking national champions in the Continental mould.

"There is a great opportunity for the LSE at the moment. If they were to come and talk to Cap Gemini Ernst & Young, our technology partner, I think they would be met by their customer base and indeed their shareholder base by some degree of applause," he said, echoing a written invitation he issued to Mr Cruickshank to enter a technology alliance.

"All those people who are now arguing for a merger [between Liffe and the LSE] are not looking at what can be delivered without a merger and can be delivered faster. That opportunity was not available until LSE shareholders started to lose patience with the iX merger. It is available now."

Liffe Connect is available in 300 dealing rooms worldwide. Customers in all corners of the globe can trade Liffe products on the same basis as London-based traders. He says: "Distribution is key. LSE does not have distribution around the world like we do with Liffe Connect."

Mr Williamson may be wrong. Recent attempts to launch new exchange-traded products have fallen flat. Investment banks will not let go their grip on the high margin over-the-counter derivatives business.

But the Web changes everything. It is now cost-effective via the internet to offer retail customers products that were once the exclusive preserve of the institutional investor. For the private investor who wants to buy Nokia or Cisco without opening a dollar or euro account, buying a Liffe stock future may be the answer.

John St John, an investment banker who quit Lehman Brothers to become chief executive of EO, an online broker that distributes IPOs to the retail market, says: "Williamson has got the right idea. The retail market is the future."

Liffe had a near-death experience. It had no choice but to change or die. The LSE's underlying business is profitable, so there is not the same urgency for change but the cry from its shareholders and customers is the same. There is no international strategy, no vision of the future. As Brian Winterflood put it last week: "We don't need to merge with Deutsche Börse to trade BMW. It is already quoted in London but nobody knows that because the Exchange does not tell anyone."

Mr Williamson is not rushing into an IPO. Instead he is working out a strategy, building confidence among customers, and bringing on board shareholders who can contribute technology, know-how and contacts. Two years after being written off, he is now turning suitors away. "I never talk to exchanges but I talk to a lot of technology companies," he says. His advice to Mr Cruickshank is to do the same.