June 9, 2000
Financial Times
Liffe joins forces to sell trade system
By Aline van Duyn in London and Nikki Tait in Chicago
The London futures exchange (Liffe) is joining forces with technology and venture
capital partners in Europe and the US to sell its electronic trading system - Liffe
Connect - to other financial exchanges and new e-commerce exchanges around the world.
The deal, which involves a £60m ($91m) capital injection and eventually an
initial public offering of Liffe shares, is the springboard the UK exchange
hopes will enable it to gain a significant place in the global trading environment.
The London International Financial Futures and Option Exchange will develop its
plans with Cap Gemini Ernst & Young, the European-based technology/management
consultancy, and Battery Ventures and the Blackstone Group, the private US venture
capital and investment group.
Battery/Blackstone already hold numerous communications and technology
investments, including interests in a number of new online marketplaces, such
as Altra Energy and CheMatch.com.
They will invest around £40-£60m in Liffe, and with additional warrants could
receive a stake of up to 40 per cent. Shareholders will be offered £20m of new
shares at £6 per share.
"The internet has created a revolution in markets. To take advantage of that, we
will develop Connect not only for ourselves but for other users too," said Brian
Williamson, Liffe chairman.
The deal is likely to arouse interest among derivatives exchanges worldwide.
Many have talked about selling services outside their traditional markets.
At present, most internet-based trade exchanges operate for "spot" transactions
only. But Oliver Curme, Battery general partner, said on Thursday: "Everywhere
you get a spot market, there's an opportunity to build a futures market with up to
10 times the underlying volume."
Battery/Blackstone are believed to have discussed investment possibilities with
several big US futures exchanges, and on Thursday Mr Curme did not rule out a
possible future involvement with the Chicago Mercantile Exchange, which is
demutualising. However, he stressed the partners' commitment to the Liffe
Connect electronic trading technology.
Liffe came late to electronic trading. It was pushed into creating Connect after its
trading pits lost the German bund futures business to the electronic
Swiss-German Eurex exchange.
Connect has proved a success with bankers, and Liffe has maintained its
dominance in short-term interest rate futures. Its share price had risen to £7.50
from £3.85 before yesterday's announcement. It has a market capitalisation of
£123m.
The new partners' share stake will be in Liffe Holdings, which will be split into
two, probably next year. One unit will be the Liffe exchange; the other will be the
trading technology company, which has not yet been named.