LIFFE cuts 600 jobs to stem drift of business

LIFFE, the London International Futures and Options Exchange is to lay off 60 per cent of its 1000 staff in a radical bid to halve its cost base and regain its position as Europe's premier derivatives exchange.

Chairman Brian Williamson has set the exchange the target of more than halving costs from pounds 138m to pounds 60m by the end of next year. The moves are in response to the loss to Frankfurt of business in the all-important German bund contract which has sparked concern about the ability of London to remain competitive, particulary as exchanges like Frankfurt and Zurich join forces in preparation for the introduction of the Euro next year.

Mr Williamson said yesterday that having decided on a course of action to win back the support of members, he was now ready to embark seriously on attempts to forge partnerships with other exchanges abroad.

Mr Williamson said that Frankfurt and Chicago would inevitably be on the list of exchanges with which Liffe would wish to deal, as would the London Clearing House. Mr Williamson said he was at one with David Hardy at LCH on the need to offer seamless clearing services, but insisted that although a full-blown merger was an option it was not necessarily the best way to achieve this.

LIFFE, he said, had had a large number of approaches from other exchanges wishing to ally with it, but had felt that it needed to get its own house in order before it could enter into meaningful discussions.

However, he insisted that any moves would have to be driven by the needs of customers not those of the exchange. He pointed to the case of Chicago which had so lost the confidence of members that some had started looking into setting up their own rival market. London, he pointed out, still turned over pounds 264bn worth of contracts each day.

"We have to deliver an efficient trading platform together with the products that our customers want at a price they are prepared to pay," Mr Williamson said.

"It is clear that nothing remotely like our current cost base is sustainable and that we shall have to cut costs to remain competitive," he added.

After consulting with the exchange's members, and its own internal committee, known as the Fast Progress Group, the Board, he said, had decided to focus on three priorities: finances, regulation and new partnerships.

A key part of the strategy unveiled yesterday will be to cut a swathe through the regulatory rulebook in an attempt to counter widespread criticism in the City that LIFFE's belt-and- braces approach to regulation was inappropriate for a market which deals exclusively in products aimed at a sophisticated wholesale market.

"It is the user that will call the shots," he says.

LIFFE will also speed up the move from open outcry to screen-based trade and step up efforts to overhaul its technology to cope with increasingly sophisticated demands.

Mr Williamson said the existing rulebook which was largely inherited from the outmoded Chicago model is based around the pit and no longer appriopriate in a screen-based market.

LIFFE yesterday refused to be drawn on where precisely the jos cuts would fall. However, at least 350 of the staff currently working at LIFFE are IT specialists working on a contract basis on specific projects like the LIFFE Connect electronic trading platform which is to be rolled out later this month.

The phasing out of pit trading will inevitably mean that the 100 or so staff responsible for supervising trade at the 10 futures pits at LIFFE in Cannon Bridge, London will no longer be needed. Simplifying the rulebook would also reduce the need for the current levels of staffing in the supervisory and investigation departments to be retained.