Friday, June 12, 1998 Published at 14:12 GMT 15:12 UK
Business: The Economy
Liffe, but not as we know it
Will floor traders become an extinct species?
Daniel Hodson insists on looking on the bright side of Liffe. In an interview with BBC News Online's Andrew Yates, the chief executive of London's derivatives exchange explains how he plans to reform the troubled exchange.
Few would envy the task ahead of Daniel Hodson. The chief executive of the London International Financial Futures and Options Exchange, Liffe, is facing the biggest challenge of his career.
Under fire from all sides, not least from its own members and traders, Liffe has announced plans for the biggest overhaul in its history. In what could signal the end to the lively antics of colourfully clad traders on the Liffe floor, the exchange plans to introduce electronic trading and a radical shake up of its ownership structure.
Mr Hodson is charged with supervising this tumultuous change. At stake is London's position as the financial capital of Europe. If the reforms fail then Liffe could never recover. If they succeed he will have succeeded in averting a mid-Liffe crisis.
Liffe members voted overwhelmingly to back a move which will allow all of the exchange's contracts to be traded on screen by the middle of next year. Electronic trading for some contracts could be introduced within a month.
The changes mean the open outcry method of trading could be confined to history.
But he claims screen based trading may not be the final nail in the coffin for open outcry trading. Complicated short term interest contracts still require the human touch. He said: "It doesn't mean the sudden death that some people have predicted for open outcry."
Liffe has been criticised for delaying the implementation of electronic trading which allowed rival exchanges to steal a march on the London exchange. But Mr Hodson says that until a few months ago everybody thought that electronic trading would not triumph over the floor.
"It is very easy in hindsight to say we should have done it earlier but I can tell you that until very recently there would not have been a consensus among the membership," said Mr Hodson.
At the heart of the Liffe reforms is a fundamental shake up of the way the exchange it managed. The existing co-operative decision-making process proved inflexible and time consuming. Outside shareholders will also be allowed in for the first time.
But Mr Hodson insists that members will not relinquish control of the exchange.
"We have no plans to float on the stockmarket. It is very important that we have a very significant percentage of our shareholding held by people who have an interest in the market," he said.
Mr Hodson acknowledges that the changes have ruffled a few feathers among Liffe's members and some have voted with their feet. However he said: "I do detect that ... there is a feeling of relief that we now have a clear direction."
"Our competitors have taken advantage of all the balls being up in the air and that had increased the pressure," said Mr Hodson.
But Liffe will continue to go it alone and Mr Hodson appears to relish the challenge ahead.
"DTB is a very real and important competitor... that is now looking at us eyeball to eyeball. That has been very important in terms of driving this exchange towards making some key decisions. It is a wonderful example of how competition drives innovation and drives change," he said.
He added: "I won't say that the whole of the last few months have been wholly enjoyable but I think in business you are paid to go through difficult times and stand your ground and do what you believe is right."
Mr Hodson believes that Liffe may not be the only British financial institution under threat. The London Stock Exchange is not immune to a similar international challenge.
He said: "The eyes of London and the UK financial community are very much on us which is not always a comfortable position to be in. We have to learn the lesson that we have a very determined competitor in Frankfurt with an international outlook. And we need to look at all our markets to make sure we are able to withstand that competition which will come and really have built the sea defences as high as they possibly can be while there is still time."
Only time will tell if Mr Hodson will be able to enjoy the good Liffe once more.
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