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.

Daniel Hodson tells BBC News Online why Liffe just had to change

He has presided over the rapid expansion of Liffe, as it grew to dominate the European derivatives market, dwarfing its main rivals. But those rivals are fighting back with vengeance and suddenly Liffe's position is beginning to look precarious.

Under fire

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.

Daniel Hodson faces the biggest challenge of his career

Mr Hodson believes the changes at Liffe are vital for the future health of the market. The British exchange has been forced into embracing the brave new world of electronic trading by the outstanding success of its German equivalent, the Deutsche Terminbörse (DTB). "We found that over time a number of other exchanges started to introduce electronic trading. For many years we held it at bay. But very recently our great German competitor started to gobble up market share of in relation to one of our key contracts, a German government bond contract (known as Bunds)," said Mr Hodson.

Crying shame

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.

Pointing the way to progress

Mr Hodson said: "You wouldn't be a normal human being if you were not sad to see such a colourful, exciting and stimulating method of trading potentially moving, perhaps over years, to its close. I think it is a sad moment. But I think history is full of these things. It must have been a very said moment when sailing ships were overtaken by steam ships. This is function of progress."

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."

Criticism

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.

Keeping control

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."

Battling on

DTB is winning the battle for the Bunds

The exchange has a daunting fight on its hands. DTB has teamed up with some of Liffe's other European rivals, including France's Matif derivative exchange, to form a formidable opponent.

"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."

Fresh challenge

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."