London International Financial Futures and Options Exchange
From Wikipedia, the free encyclopedia
this entry is about LIFFE until the takeover by Euronext
The London International Financial Futures and Options Exchange (LIFFE, pronounced 'life' as in 'human life', and never 'liff-eee') was the name of a futures exchange based in London, prior to its takeover by Euronext in January 2002. It is currently known as Euronext.liffe.
Contents |
[edit] History
The London International Financial Futures Exchange (LIFFE) started life in 1982, to take advantage of the removal of currency controls in the UK in 1979. The exchange modelled itself after the Chicago Board of Trade and the Chicago Mercantile Exchange. It initially offered futures contracts and options linked to short term interest rates. In 1992 LIFFE merged with the London Traded Options Market (LTOM), adding equity options to its product range. This is when it changed its name to the London International Financial Futures and Options Exchange. In 1996 it merged with the London Commodity Exchange (LCE), and, as a result, a range of soft and agricultural commodity contracts was added to its products offering. Trading was conducted by open outcry, where traders meet on the trading floor (in what is called the pit) to conduct trades.
By the end of 1996 LIFFE was by far the biggest futures exchange in Europe, followed by the MATIF in Paris and the Deutsche Terminbörse (DTB) in Frankfurt. The DTB was an electronic exchange founded in 1990 and the predecessor to Eurex. LIFFE's most traded product was a futures contract on Bunds, the 10 year German Government Bond. The DTB offered an identical product, but as an electronic exchange, it had a lower cost base. The progress of DTB can be gauged from the fact that during Mid 1997 the DTB had less than 25% of the market. By October it had more than 50%, and a couple of months later LIFFE was left with only 10%.
[edit] Move to electronic trading
Around this time LIFFE had big plans to expand, and intended to redevelop Spitalfields Market in the City of London as they needed a larger building for their open outcry trading. With the loss of the market for their main product, Bund future contracts, all expansion plans were shelved, and LIFFE moved to an all electronic trading model in 1998. It already had an electronic platform called Automated Pit Trading (APT), which was used in after hours trading when the trading pit was closed. LIFFE now developed LIFFE CONNECT for all trading.
In January 2002 LIFFE was acquired by Euronext, joining the exchanges of Amsterdam, Brussels, Paris and Lisbon. Together with the derivative arms of the continental European exchanges it became Euronext.liffe. Some analysts say that LIFFE had to give up its independence because it had failed to embrace technology early enough. For information on LIFFE after the take-over, see Euronext.liffe.
[edit] LIFFE traders and brokers
LIFFE accredited traders, particularly those engaged in the open outcry trading pits, could and did earn high salaries at the price of a demanding and stressful job. Floor support personell (Runners, Midoffice or Phone Clerks), in contrast, usually earned a lot less. LIFFE floor staff was easily identified by bright orange coats and code tags.
[edit] LIFFE social life
LIFFE pit traders and locals (Traders trading on their own account, betting their own funds) in particular enjoyed a reputation of a lavish lifestile - pubs and wine houses along Cannon Street were filled with LIFFE personnel any time of day. LIFFE floor visitors were often surprised by the harsh emotional conditions and chaotic-looking floor, with paper snipplets covering the floor and abuse frequently being yelled jokingly at them.
[edit] Arbitrage
What probably kept LIFFE alive for a while alongside other exchanges such as DTB were arbitrage opportunities. The contracts on the German Bund traded at LIFFE and DTB were financially equivalent, opening up arbitrage opportunities between the marketplaces. A bund contract being offered at 98.15 at LIFFE, simultaneously being bid for 98.18 on DTB could result in a risk-free profit of 3 Ticks buying at LIFFE and simultaneously selling on DTB, but would leave an open position in each separate exchange. Arbitrage was frequently conducted, due to the complex prerequisites restricted mostly to institutional market participants.
[edit] References
- Durica, Dr. Michael (2006). Product Development for Electronic Derivative Exchanges: The case of the German ifo business climate index as underlying for exchange traded derivatives to hedge business cycle risk. Pro Business. Berlin.
