Outlook: Why Liffe should see off this challenge

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The Independent Online
London's pre-eminent position in futures and options trading has long been the object of jealous regard by both Frankfurt and Paris. This is more than just a commercial thing. It is also about ancient rivalries, and, most important of all, alarm that the City could continue to be the dominant financial centre in a Europe united by a common currency Britain may never be a part of.

So far, however, neither Paris nor Frankfurt has come anywhere near rivalling Liffe, which even manages to beat them on their own ground with locally denominated derivative instruments. Unequal to the task on their own, the two are now proposing to gang together in their attempt to trounce London's testosterone-fuelled barrow boys in stripey jackets. Might they succeed?

They've tried once before and failed and while the latest attempt to pool contracts and resources looks a more serious stab at the exercise, there's no reason to believe they will fare any better this time round. For starters, the two have adopted radically different approaches to futures trading. Paris has copied the open outcry method of eyeball-to-eyeball trading used in London and by the Chicago Board of Trade. Frankfurt is a high-tech, screen-based trading system.

While it is true that the two methods coexist perfectly happily both in London and Chicago, that is only because screen trading is so obviously only a little-used back-up to the action in the pit. The two cultures will not merge easily without one subsuming the other. Paris and Frankfurt may be united in their hatred of London but their hatred of each other is equally powerful.

Even assuming the alliance works, they still have a huge catching-up exercise to do. The Deutsche Boerse and Matif combined are still streets behind Liffe in terms of critical mass. Chuck in Simex, the Far Eastern futures exchange, for good measure, and they still wouldn't come close.

But there is also a more fundamental reason to believe Liffe will maintain its lead. The City is in essence an offshore centre not dependent on the fortunes of the UK economy. No other financial centre in the world is quite like it. It is this, more than anything else, that lies behind Liffe's phenomenal growth. Other financial centres, even the great ones of New York and Tokyo, exist mainly to service their own domestic economies. That is not true of the City which is genuinely international in the way it operates and trades.

It would be dangerous for Liffe to be complacent, but nor do the bellicose noises from Paris and Frankfurt seem for the time being like anything more than hot air.