Outcry over Germans' offer to Liffe members

THE GERMAN derivatives exchange has tried to lure away the entire membership of Liffe, London's troubled financial futures and options exchange.

The Deutsche Terminborse (DTB) has written to all of Liffe's members and offered them a free six-month trial of its electronic trading system. This includes a rent-free computer terminal and the necessary software. A spokesperson for DTB yesterday declined to say how many Liffe members had taken up the offer.

The DTB's move is the latest in series of audacious attempts to raise its profile in the UK and steal market share from Liffe, its arch-rival. In recent weeks, the DTB has taken out full page adverts in a number of UK national newspapers offering to install its own electronic system at Liffe for free. Liffe, which recently decided to introduce electronic trading alongside its traditional open outcry system, turned down the offer.

"The DTB's system does not have the superior functionality we require," replied Jack Wigglesworth, Liffe's chairman.

The debate over electronic trading is just one dilemma facing Liffe, which is widely perceived as being "caught on the hop" by the aggressive assault from its German rival. Liffe has been rapidly losing share to the DTB, and its management is coming under increasing pressure from the membership.

A DTB spokesperson said the German exchange's share of trading in the prestigious German Bund future was almost 70 per cent last month. "It is now approaching 80 per cent," he added. In the middle of last year, it was Liffe that had a 70 per cent share of trade in the Bund - DTB's share was just 30 per cent.

The DTB attributes its recent success to its electronic system as well as its aggressive pricing tactics. It currently costs 50 pfennigs (16- ) to trade a Bund future on the DTB - the comparable figure at Liffe is more than 50 per cent higher.

One prominent member of Liffe said: "We've lost the innovative edge that gave Liffe so much strength in the past." The Liffe member put the blame for the downturn in the exchange's fortunes squarely at the feet of the management. He said: "Most of Liffe's members have the flexibility and the ability to do well, but there is poor leadership. You need commercially minded people to run the exchange, people who are familiar with the background of the business."

Jack Wigglesworth's term as Liffe chairman comes to an end next month, when he is expected to stand down. Daniel Hodson, Liffe's chief executive, has also faced calls from some members to resign, although he has said he has "no intention" of doing so.

In an extraordinary meeting next week, members will vote on whether the exchange should have a full-time chairman. The move to full-time chairmanship is just one of the proposals suggested by management in an attempt to revive the Liffe's fortunes.

The membership will also vote next week on whether to cut the size of Liffe's board to 18 members. Liffe's board has been called "unwieldy", and insiders have questioned the commitment of some board members.

Currently, there are 24 members of the board members at Liffe, one fewer than the normal 25 following the resignation of David Kyte, of Kyte Futures. Mr Kyte, a Liffe "local" - who speculates with his own money on the exchange - recently resigned his post following a dispute over fees.

Other thorny issues for Liffe include that of electronic trading - which still needs to be formally endorsed by the membership - and the ownership structure of the exchange. These topics will be dealt with at an extraordinary meeting next month.

The exchange is currently mutually owned by its members, but is understood to have employed Schroders, the UK merchant bank, and is said to be considering demutualisation, and possibly flotation.

One Liffe member said he was concerned the measures were "too little, too late". He added: "Only time will tell. Liffe has many plus points. It is independent, as opposed to the DTB which is largely owned by the big German banks, and we have a lot of expertise here. Everyone wants it to succeed."

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