Liffe considers trading in mutual status as it moves out of the pits

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The Independent Online
THE LONDON International Financial Futures and Options Exchange (Liffe) will next month propose changes in its ownership structure which could see it turned into a private company and possibly opt for a stock market flotation.

The exchange is understood to have appointed Schroders, the merchant bank, to look at the possibilities for changing its structure. The proposed changes are a result of Liffe's plans to replace the "open outcry" trading system - where traders signal to each other in pits - with an electronic screen-based trading system. That would open up the exchange to a huge number of users around Europe. However, it would also undermine the current mutual structure, which restricts trading rights to members of Liffe.

As a result, the exchange is looking at ways of turning itself into a normal company, with its existing members as shareholders.

A Liffe spokesman confirmed that the changes were under consideration. "We don't want to limit access to Liffe," he said. "So we have to break the link between shareholders and traders."

Liffe's 215 member firms will be asked to vote on the move to electronic trading at an extraordinary meeting next month. They will also be asked to consider the options for the exchange's ownership structure.

The changes at Liffe are a response to increased competition from other exchanges, principally the Deutsche Terminborse in Frankfurt. The German exchange, which operates a screen-based trading system, recently overtook Liffe as the leading exchange in trading German bond futures, known as Bunds.

Liffe is planning to spend over pounds 20m developing a screen-based system to trade Bunds but this will not be ready for 18 months. A cheeky offer from the Germans to share their system was turned down.

Last month, Liffe slashed transaction fees on financial futures and options products in an attempt to stimulate trading volumes and lure back some business.

Nevertheless, the exchange has come in for vociferous criticism from its members. David Kyte, a leading trader who last month resigned from Liffe's board, has accused the management of not responding quickly enough to changing conditions. The exchange has gone some way to counter that criticism by reducing its board from 24 members to 18 and engaging headhunters to find a full-time chairman. The current incumbent, Jack Wigglesworth, will step down in June after serving his three-year term.

Liffe currently charges its members for "seats" on the exchange. However, the majority of its revenues, which were just over pounds 100m last year, are made by taking a minuscule cut of every transaction that takes place on the exchange. Trading volumes are running at about pounds 250bn a year. Liffe also has a cash pile of about pounds 150m, though part of this is the reserve the exchange has to keep to meet regulatory requirements.