Liffe fights back with own Chicago market connection

LIFFE, the London futures and options market, and the Chicago Mercantile Exchange (CME) yesterday announced a strategic partnership linking the world's two most liquid short-term interest-rate futures markets.

Brian Williamson, Liffe chairman said that the CME deal - which follows the alliance between the exchanges' main respective rivals - Frankfurt's Eurex and the Chicago Board of Trade (CBOT) - could save some customers up to 70 per cent of their exchange costs as well as providing access to a wider range of products, including a spread trading facility linking euro and dollar interest rates for the first time.

"This is intended to meet the demands of customers who are pushing very hard, not only for the derivatives exchanges to understand what they want, but the cash markets as well," Mr Williamson said.

He insisted that unlike the CBOT-Eurex alliance, the CME-Liffe partnership would be open from the start to other like-minded parties, including not only other exchanges but technology providers and users as well. "This is not a traditional alliance," he said.

Yesterday's deal is expected to come into effect early next year. It provides for:

t The two exchanges to make their products available to customers over each other's electronic systems, respectively Liffe Connect and CME's Globex;

t Cross-margining - that is, allowing customers trading on the two exchanges to offset positions on one exchange against positions in the other when calculating the amount of capital they have to put up to cover default risk; and

t Setting up of a revenue-sharing joint venture to develop new products and services to meet customer demand.

Outlook, page 15