Eyeballing at Liffe denies commercial reality

`Try this waffle for size. According to Liffe chairman Jack Wiggleswort h: "There is something very special about human beings being together in an environment where they are sharpening their wits together. There are a lot of nuances when you look into someone's face"'
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Nobody could deny the City would be a duller place without the testosterone-fuelled antics of the barrow boys in stripy jackets. But Liffe's renewed commitment to the system of open outcry looks nothing more than a victory of vested interests over technological and commercial reality.

Liffe completed a strategic review this week with the totally predictable decision to maintain the anachronistic tradition of eyeball-to-eyeball shouting matches it copied from the Chicago Board of Trade. Its woolly justifications for the maintenance of open-outcry failed to convince, however.

Try this waffle for size. According to Liffe chairman Jack Wigglesworth: "There is something very special about human beings being together in an environment where they are sharpening their wits together. There are a lot of nuances when you look into someone's face."

Chief executive Daniel Hodson takes a less romantic line, attributing the continuing success of open-outcry to greater liquidity, flexibility and transparency. But these are the arguments used to defend the old floor trading at the Exchange; nobody would dream of turning that clock back.

The main contradictions in Liffe's luddite stance are in its admission that there is strong market demand for screen-based trading, particularly outside normal trading hours, and in its recognition that the efficiency of the open-outcry system needs to be improved. Liffe has a commanding lead in Europe, where volumes are higher than the futures and options markets in Frankfurt and Paris combined, but it is right to worry about complacency.

That said, it would be churlish to be too harsh on a market that in its first 15 years has already outgrown two homes. It had barely unpacked the boxes after its move from the Royal Exchange to Cannon Bridge before it started planning its next shift to Spitalfields, to go ahead next spring.

The 168 million Liffe contracts traded last year were 27 per cent higher than in 1995, itself 10 per cent up on the previous record, and there is no reason to believe London will not dominate the market for Euro- denominated contracts in the future. If this is an anachronism, it is at least a successful one.

Weird, wonderful and spooky world of Fids

Strange, spooky, and to be frank, rather hard to articulate, consequences of the new Government's abolition of tax credits on dividends, are cropping up like nobody's business. EMI and Allied Domecq yesterday announced they would be paying their dividends as "Foreign Income Dividends" (Fids). They are expected to be followed by Siebe, Tomkins and Reuters. That trickle could become a flood. Any company with unrelieved advance corporation tax problem is now going to pay its dividend as Fids.

In the past, many companies have shunned Fids, even though it might have been tax-advantageous to use them. This was because pension funds and other tax-exempt shareholders couldn't claim a tax credit on Fids while they could on ordinary UK dividends. As a consequence, Fids have never been fashionable. Now dividends are to be paid net to everyone it no longer matters whether they are paid in the ordinary manner or as Fids. Companies can stop worrying about their shareholder profile and concentrate simply on their tax position. Splendid news, then. Fids will finally be working in the way always intended.

Trouble is, they are going to be abolished in April 1999 in an undisguised revenue-raising manoeuvre by the Government. At that point the problem of unrelieved ACT will become acute for companies that earn a high proportion of profits overseas. This is worth a lot of money to the Government and as such it is not an unintended consequence. But it surely is an unfair one.

So on to the next weird consequence. The Treasury says it will look sympathetically at companies that find themselves in this position. The betting is that after intense lobbying it is about to cave in and allow a continuation of Fids for companies that make, say, 80 per cent or more of their profits overseas. Great idea, or would be were it not for the fact that companies on the border line would then have a clear tax incentive to invest overseas rather than at home. Spooky.

Then there are the market-makers. They've been coining it like Topsy out of a not-so-little tax scam that revolved around dividend payments. Now the Revenue is clamping down and dividend payments will be taxed as ordinary trading profits. But that's unfair, say market-makers - on this occasion with justification. The effect is they will now pay corporation tax on net dividends, raising their marginal rate on such payments to 51 per cent. There is even a possibility the move could drive market makers offshore, or even to Frankfurt, heaven forbid. Again the Treasury may be forced into an embarrassing climbdown.

The lesson of all this is that corporate tax has become a minefield through which the well intentioned but innocent should not be wandering without a proper route map. It is foolish to attempt piecemeal reform. A problem solved generally creates a host of others. The Government should perhaps conduct one of those reviews it seems to be so fond of before proceeding any further.

Eurotunnel turkeys can save their necks

Today is D-Day for Eurotunnel and, unless there is a mass outbreak of la folie on the other side of the Channel, the company should be half- way to financial salvation come close of play tonight. Shareholders will gather in Paris to vote on the restructuring of its pounds 8.7bn debt mountain. Eurotunnel's banking syndicate, whose support is also needed, will vote in the autumn on their half of the deal.

The choice for its army of small and nowadays mainly French shareholders is stark. It lies between massive dilution at the hands of the consortium's banks on the one hand and extinction on the other. Supposing shareholders vote through the restructuring, they will see their equity interest in the tunnel shrink to 45 per cent at best and a large chunk of the tunnel's free cash flow diverted in the direction of the banks for the foreseeable future. The alternative is substitution of Eurotunnel by its banks, the liquidation of the company, and the disappearance of their travel perks - about the only thing these days that makes them worth hanging on to.

Provided Eurotunnel can achieve a quorum today - no mean feat since 25 per cent of its shares need to be represented - the arithmetic should favour the management.

However, a significant number of shareholders may still be tempted to play for the highest stakes, calculating they will get a better deal by putting Eurotunnel under the protection of French bankruptcy law. That would be madness. The reality is that the package on offer today is the best they are likely to see.

Eurotunnel's shareholders may have been turkeys for buying the original prospectus, but they do not have to vote for an early Christmas as well.

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