Outlook: Liffe/CME

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The Independent Online
WHEN IS an alliance not an alliance? When it is a strategic partnership. In announcing yesterday's link-up with the Chicago Mercantile Exchange, Brian Williamson, the chairman of Liffe, London's embattled futures exchange, knew full well that it would be construed in some quarters as a panic reaction to the Chicago Board of Trade's link-up with Liffe's arch-rival Eurex.

After all, hasn't Mr Williamson repeatedly said since returning to lead Liffe's fight back last year that he does not believe in traditional alliances. Yet there he was cosying up by satellite link to Scott Gordon of the Merc.

The truth is that this was an opportunity that was too good to miss. Although Liffe has lost the flagship bund contract and its successor at the long end of the euro futures market, it leads on Euribor, the short end of euro. The Merc, meanwhile, reigns supreme in the short-term eurodollar market. Customers want to trade round the globe and Liffe, if it is to survive, has to make the most of its pivotal position between the dollar and euro blocks.

But there is more to yesterday's deal than that. The big trading houses are giving up on the exchanges altogether and either setting up their own parallel dealing systems like E-Cross Net, the share-crossing system launched by Barclays and Mercury Asset Management last week, or backing commercial alternatives like Instinet.

Mr Williamson's reckons that the answer is not to try and stamp out these alternative dealing networks but to become one. The most interesting aspect of yesterday's tie-up with the CME is the joint venture the two are setting up as a vehicle to develop new products and services with other partners, who can be technology providers, other exchanges or users. There is nothing to stop the venture becoming the basis for a global network for trading in shares, bonds, foreign exchange as well as derivatives, elbowing its way into the traditional preserve of other exchanges. Mr Williamson in his thinking is light years ahead not just of most other futures exchanges but of our dear old stock exchange as well.