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Sunday, November 29, 1998 Published at 13:23 GMT


Business: The Economy

Liffe goes on - electronically

These colourful trading scenes are to be replaced by screens

The options and futures trade in London moves into the electronic age this week with the introduction of a new trading system that will eventually replace all its floor trade.


Liffe says its new electronic system will give it a state-of-the-art edge over European rivals
From Monday, Liffe, the London International Financial Futures and Options Exchange, will shift its share options business to the new electronic platform, called Connect.

At first, the Connect system will only trade options over individual stocks. Trade in government bond (gilt) futures will move to the new system next year.

The move, which many say is long overdue, will see Liffe join its big brother, the London Stock Exchange, in the electronic age which already trades shares via the computer screen.

Derivatives explained

Options and futures are the instruments traded in the highly complex world of 'derivatives'.


[ image: Gilts still floor-traded until 1999]
Gilts still floor-traded until 1999
Options give their holders the right to buy or sell shares or other securities for a set price by a specific future date - but they are not obligated to do so.

Futures are contracts committing holders to buy goods or securities at a set price on a future date.

Both of these instruments involve players taking risks on future market movements.

Options on offer include those for individual shares and for share indices like the FTSE 100. Futures contracts can be bought over physical commodities like oil and wool, and over financial securities like bonds and currencies.

Screens not screams

The decline of floor trading will mean the end of the loud and colourful 'open outcry' system under which traders in bright jackets clamour over transactions all together on the market floor.

The move to trading via computer terminal is part of a restructuring of the exchange brought on by a dramatic decline in its competitiveness.

Once the leading derivatives market in Europe, Liffe was overtaken this year by Eurex, the Swiss-German exchange which already operates electronically.

Liffe has already announced that more than half of its 1,000 workforce will be cut over the next year

The exchange's Chairman, Brian Williamson, said earlier this month: "Liffe needs to act decisively, and quickly, to secure a strong foundation for the future development of our business - we have to deliver an efficient trading platform."

Liffe believes the more efficient trading method will allow it to expand the range of options and futures traded in a financial environment which is demanding more of these sophisticated instruments.

Already the prospect of a new age has seen the 25 separate dealers on the exchange almost double to 47 for the start of electronic trading.

Traders have supported the change with the director of one options dealership saying: "Screen trading is clearly the way of the future - the sooner we get into it, the sooner we as a firm can compete with everyone on other exchanges around the world."



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