The Player: Brian Williamson, executive Chairman of LIFFE - Can Williamson give Liffe a new lease of life?
Wednesday 17 March 1999
CHALLENGE: To recover competitive ground lost to Eurex, the European Exchange encompassing the German and Swiss derivatives markets, become more responsive to customer needs, cut costs and regain its reputation for technological innovation. Derivatives exchanges are highly dependent on the health of the underlying markets, says Mr Williamson. "This is both the dilemma that Liffe has, and the reason for having some optimism."
CORPORATE BACKGROUND: One of the founders of Liffe. Became one of its directors in 1980, and was chairman in 1985-88. In 1982, he founded the global brokerage house, GNI Ltd, with Mark Davies and Christopher Sharples. Governor of Nasdaq for three years to 1998. Current directorships include Financial Services Authority, Electra Investment Trust, Fleming Worldwide Investment Trust and Bank of Ireland.
STRATEGY: An exchange such as Liffe, which has a wide international spread of customers, "is going to feel the winds of competition much faster than anywhere else", says Mr Williamson. In order to meet the challenges, Liffe is going through what Mr Williamson likes to describe as "the four winds of change". The roll-out of the new electronic trading system, Liffe Connect, is being accelerated. Liffe launched its Automated Pit Trading system (APT) in 1989 which Mr Williamson said was "way ahead of its time". The trouble was that customers wanted the business automated, not the Pit. Mr Williamson believes that open outcry trading has acquired an unfair reputation and still has a role to play. "Where cash markets are poor, the Pit is a tremendous mechanism for discovering price," he says. Eighty per cent of Liffe Connect is up and running. Restructuring inevitably means job losses. By the end of this year, Liffe's staff numbers will be reduced by two-thirds, and costs will be a third lower. Mr Williamson also says the exchange has five times as much property as it needs. Finally, there is thought to be scope to improve the internal regulatory structure of Liffe. Mr Williamson says that rules and regulations tied to open outcry Pit trading are inappropriate for its customers. These large global international funds are trading around the world as wholesale counter-parties, he says. Recent rule changes allowing in external shareholders are expected to lead to investment in Liffe by some of its independent software vendors. These include Reuters, Bloomberg LP and Datastream/ICV. Mr Williamson welcomes the organisation's move to a more businesslike footing. "The exchange is not an institution. It is not a club. It is a business. It may be less cosy but will be more productive," he says.
Cautious optimism is the current mood at Liffe. The launch of the Euribor (three-month European money market rate) contract on 4 January was very successful. Liffe has won 86 per cent of the Euribor market, making it one of the most successful product launches. The total underlying interest in all the Euro money market contracts at the end of February exceeded 2,000 billion euros. Mr Williamson says the success of the Euribor contract shows that "provided we can deliver, people will give us support". A key part of the success was attributed to close contact between Liffe and its customers. "We must never again lose that link," says Mr Williamson. Liffe is already providing its data to 15 other exchanges.
MANAGEMENT STYLE: Mr Williamson says senior management at Liffe have a good combination of talents and skills. Chief executive Hugh Freedberg is said to be used to dealing with difficult situations. John Foyle, deputy chief executive, knows a lot about derivative exchanges around the world and is well respected in the industry.
MOST ADMIRES IN BUSINESS: David Orr, chairman of Unilever. "He is a really good chairman of a large company" says Mr Williamson. Without wishing to sound sycophantic he also mentions Eddie George, Governor of the Bank of England. "His understanding of markets is unmatched among central bank governors."
CITY VERDICT: Large investment banks tend to prefer the transparency of screen trading where they can exercise greater control and trade more efficiently, rather than open outcry trading. If there is to be screen trading, some question the necessity for Liffe's huge building at Canon Bridge in the City of London. There is a view in some investment banks that Liffe is biased towards its local traders and older brokerage firms. As such, it has been slow to react to market developments. "Liffe should be doing its utmost to be the centre," said one trader. The cheaper cost of dealing on Eurex, three quarters that of Liffe, is a major attraction. "It's a sad day for Liffe," said a trader.
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