Margareta Pagano: Can London still get some Liffe out of ICE?

The LSE made a huge mistake by not buying the futures exchange but can salvage something by grabbing European assets, such as the Paris bourse

One of the great tragedies in the history of the London Stock Exchange was its failure to buy Liffe more than a decade ago. It was an enormous strategic error, which allowed it to be trumped by its French competitor, Euronext. Creating what was then being called the London solution, putting together the LSE's cash markets and Liffe's futures market, was seen by everybody as no-brainer; a jewel not be missed.

But in typical British laissez-faire fashion we let the jewel in the crown slip out of our hands when Euronext, run by the wily Jean-Francois Theodore, outwitted the LSE, offering around £550m for the futures exchange.

In another smart move, the Frenchman went on to merge his European exchanges with New York's oldest trading floor, the NYSE, to become NYSE Euronext, clumsy in name as well as management.

What was so particularly galling was that Mr Theodore's trumping of the LSE was by the tiniest of margins. It's looks all the tinier today, and LSE shareholders can be excused for feeling miffed, when you see the fabulous $8.5bn (£5.2bn) price that the US market, the IntercontinentalExchange, is paying to merge with NYSE Euronext.

It's a spectacular gamble by ICE, which has grown like topsy since Jeff Sprecher launched the energy and commodities exchange a little more than decade ago in Atlanta. And why is Mr Sprecher paying so much? He wants Liffe, which accounts for about 40 per cent of the NYSE's profits, and is worth about half the bid price, putting a value of about $4bn on the London-based futures market. Not a bad increase over a decade in which Liffe has become Europe's second-biggest derivatives exchange after Germany's Eurex market and a fierce rival to the Chicago mercantile exchange.

Mr Sprecher wants Liffe because derivatives trading and clearing are where the money is being made. As regulators push more of the over-the -counter market onto exchanges, ICE wants to be there. It's already one of the biggest US commodities exchanges and is the largest for Brent crude oil and natural gas after buying International Petroleum Exchange a few years ago; another lost deal for London.

What Mr Sprecher doesn't want, however, are the European exchanges that come with the deal – Paris, Amsterdam, Lisbon and Brussels – and he has said he will float or sell them once the merger is complete. One natural owner could be our own Xavier Rolet, the LSE's chief executive, who is close to completing the LCH merger and must be on the lookout for his next deal.

Buying such a ragbag of exchanges may not be as sexy as buying Liffe but putting them together with London, which is still the best cash market in the world, would help drive down costs and bring scale. Having London as their home exchange would also provide European companies with a much deeper and richer market for raising capital than they are being offered; it's no secret Euronext has been unhappy under the NYSE.

The timing is good too. If the eurozone economies do pick up, which is likely, then it won't be long before its corporates are out on the prowl again for new opportunities. Together Europe's companies, including the UK, have about a €1trn (£814bn) sitting idle in their banks. Of course the French won't like it if London were to buy the Paris bourse. But it would be difficult for them to argue since they bought Liffe from us and would show how European we are in outlook: after all the LSE already owns Borsa Italiana. Having Mr Rolet, who is French, leading the charge might make it less painful. And it would be the most delicious tit for tat for having lost Liffe.

Osborne should stop sitting on the fence with banking reforms

Oh dear, Andrew Tyrie has delivered such a bombshell with his damning report into banking reform that poor George Osborne must have been hoping for a moment on Friday that the Mayans were right about the world ending. Well, the world has survived but you do wonder if the government's banking reforms can survive as well.

For the report from the Parliamentary Commission on Banking Standards, chaired by Mr Tyrie, claims the proposed Vickers reforms fall well short of what is needed to restore banking and banking standards. They endorse the central tenet of Vickers, that universal banks should be allowed to ring-fence their retail operations from those in the investment bank, but Mr Tyrie and his team of 10 MPs and peers, want the fences to be electric. To do this, they say give the Bank of England's new regulator, the Prudential Regulation Authority, the reserve power to force the total separation of retail and investment banking businesses if a bank doesn't behave itself properly. And, if banking chiefs fail to do so, they should be prosecuted.

It's certainly a big advance on Vickers but you do have to ask whether all this messing around with fences isn't just the most elaborate conceit. As I've argued forever, the simplest solution is to make a clean split. It goes without saying that splitting retail and investment banking isn't the panacea to all that has gone wrong but it's a starting point and has the merit of being simple too: bright people are always going to run rings around fences whatever they are made of. As Jon Moulton, the venture capitalist, said, putting up an electric fence is like trying to control POWs in Colditz: "Why bother – it's going to be futile."

However, Mr Tyrie's proposals do go a long way to make banks a little safer. They will be hard for Mr Osborne to resist; one of the peers on the commission is the future Archbishop of Canterbury, Justin Welby, who played an influential role in formulating the proposals. Bishop Welby has clear views on bankers: he once likened the crash to the bombing of Coventry cathedral. His curse could prove more potent than that of the Mayans.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Telesales Executive - OTE £25,000

£13000 - £25000 per annum: Recruitment Genius: Would you like to be part of a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you passionate about sale...

Ashdown Group: Graduate Developer (Trainee) - City, London

£25000 per annum + benefits: Ashdown Group: A large financial services company...

Ashdown Group: Marketing Assistant - Financial Services Sector - London

£20400 per annum: Ashdown Group: An established and highly reputable organisat...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future