French assault on gilts contract

Click to follow
The Independent Online
THE PRESSURE on Liffe, London's futures exchange, intensified yesterday when Matif, the French futures exchange, announced plans to trade in gilt futures, an area where Liffe currently enjoys a monopoly.

The French exchange is to begin trading 5 and 10-year gilt futures on its electronic trading system on July 15.

In a statement, Matif said: "The launch of the new gilt contracts comes in response to the wish of market participants, particularly in the UK, to benefit from the advantages of electronic trading."

Dealers at Liffe trade gilt futures using the open outcry method of trading. However, Liffe this week said it would move the five-year gilt future on to APT, its screen-based trading system, in August.

Traders now predict competition for trade in gilt futures to turn into a three way battle. The DTB, the German futures exchange, is widely expected to begin trading gilt futures later this year. The DTB, which also uses electronic trading, has already managed to win the bulk of the trade in the prestigious German government bond future, the Bund, from Liffe.

Liffe has faced fierce criticism from its members for failing to respond sufficiently quickly to competition from foreign exchanges.

Ed Condon, director of European listed derivatives at Credit Suisse First Boston, said: "The market is not big enough to support three exchanges. Volume will automatically gravitate to one exchange. Liffe has 100 per cent share of the gilt, and the others will need to do something different to persuade people to switch. They are hoping that electronic trading will.

A Liffe spokesperson said the exchange would be "reviewing urgently" whether to bring put its 10-year gilt future on to its APT system.

Outlook, page 19