June 9, 2000
The Wall Street Journal
Battery
Ventures, Blackstone Group Make Capital Infusion in U.K.'s Liffe
By
Silvia Ascarelli
Two
U.S. private-investment firms agreed to invest as much as $91 million in
the struggling London International Financial Futures and Options
Exchange, the first such capital infusion by private investors in a
traditional stock or futures exchange.
Battery
Ventures, better-known for investing in technology companies including
business-to-business Web
sites, and Blackstone Group a New York private merchant
will own as much as 38% of Liffe Holdings PLC once the transaction
is made final. Battery Ventures, Boston, also will acquire two seats on
the Liffe Board.
Liffe and the two other firms said they pan to develop derivatives markets
in areas ranging from telecommunications bandwidth and semiconductors to
natural gas, a departure from Liffe’s traditional range of derivatives
products. Derivatives are instruments, including futures and options, that
are linked to movements in underlying securities or assets. Traditionally,
Liffe’s derivatives have been based on interest rates, bonds and stocks.
The new markets won’t compete with the bevy of Internet-based
business-to-business supply chain exchanges being established in various
industries.
Yesterday’s
deal also reverberated througout the U.S. futures industry, particularly
in Chicago, where Chicago Mercantile Exchange members ratified a plan this
week to convert that market to a streamlined for-profit business.
Members
of the rival Chicago Board of Trade will vote on a similar proposal later
this month. That plan, however, has been somewhat bogged down by member
infighting and wrangling with the Chicago Board of Options Exchange over
joint-trading rights.
Former
CBOT Chairman Les Rosenthal and former CME Director Richard Sandor acted
as consultants to Battery in its Liffe deal. Both said yesterday that the
U.S. firm’s investment could spur the Chicago markets’ proposals and
provide precedent for valuing them as companies.
"You
can have the best business plan in the world, but if you can't execute it,
it's no good," said Mr. Rosenthal, adding, "That's the stage
where the Chicago markets are now, when they have to move from planning to
execution.
He
and Scott Tobin, a general partner in Battery, said the firm last year
offered to invest up to $50 million for half of CBOT’s tiny Mid-American
Exchange division. They said that Battery was truned away, however, as
CBOT weighed its own for-profit offering.
The
Liffe investment is a departure for Battery, which had never invested in a
traditional, regulated exchange. Indeed, the handful of stock-trading companies that have received capital
infusions from venture-capital funds have typically been higher growth
rivals to established exchanges such as electronic communications
networks, or ECNs. The Battery investment is the first deal for its new $1
billion venture fund.
"It's
a fundamental shift in mind-set," said Mr. Tobin. The investment, he
adds, offers confirmation “that the futures industry is poised for
growth.”
Liffe's
announcement came following a radical two-year overhaul, precipitated by
the loss of its most successful product, German government bond
derivatives, to a rival. Exchange insiders also spent months bickering
over whether to give up their system of trading via hand signals and
shouting. But a sweeping overhaul under Chairman Brian Williamson has seen
Liffe shut down its floor trading and become a for-profit business.
Liffe
now expects to split into two companies in the next 12 to 18 months, said
Mr. Williamson. One will focus on running its traditional derivatives
exchange business and the other on technology. An initial public offering
for the technology portion of the business could occur in two to three
years.
Peter
A. McKay in New York contributed to this article