Is there still life in the Liffe?

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The Independent Online
The heads of the London International Financial Futures and Options Exchange (Liffe) and the Chicago Board of Trade, under increasing pressure from German competition in trading derivatives, are meeting in Switzerland this weekend to rethink their joint venture plans.

The talks come after Germany's futures exchange, the Deutsche Terminboerse, said it will overtake Liffe as early as this month in market share on the German bund contract.

Liffe chief executive, Daniel Hodson and Chairman of the CBOT, Pat Arbor, confirmed they will scrap plans to trade each other's products using the open outcry system and will instead focus future ventures on electronic trading. The changes come as the Deutsche Terminboerse's electronic trading system continues to expand into London and Chicago. On Thursday the DTB said it will merge with Soffex, to create Europe's first cross-border derivatives operation.

"There is this relentless issue of the DTB terminals that will cause us to take a fresh look at our open outcry linkage," said Mr Arbor at the annual European derivatives conference in Buergenstock, Switzerland.

Dr Joerg Franke, head of the DTB, claimed his electronic exchange will capture the majority of trading in the 10-year German bund contract from Liffe by the end of the month. The DTB has a 43 per cent share of total trading on the contract, up from 34 per cent at the beginning of the year and from 25 per cent at the beginning of 1996.

Franke credits the exchange's decision to set up terminals in derivative centres on the world for its success and says that his lower-cost market will overtake the open outcry system. "It is a remarkable increase in market share and I am pretty sure we will reach 50 per cent in the next month," he said.

Mr Hodson admitted that Liffe is losing market share but said the open outcry system will still be the most liquid and efficient way for investors to trade futures contracts. He predicted that technology would help to improve the open outcry system as traders switch to electronic trading cards, voice-activated systems and headsets. Liffe plans to spend more than pounds 100m in the next four years to improve its state of the art technology.

Franke said the DTB and Soffex are already talking to other European exchanges about joining their new electronic exchange, to be called Eurex. Last month the DTB revived talks with France's Matif exchange about strategic alliances.

The talks between Liffe and the CBOT - not expected to lead to any immediate agreements - come amid poor performance in an existing arrangement the exchanges have for Liffe to trade US Treasury bonds and the CBOT to trade German bunds.