He also ruled out an initial public offering (IPO) this year, saying Liffe would float “when the time is right”. He stressed that the £60 million raised via a share placement – which saw US venture capitalist groups Blackstone and Battery Ventures buy a significant chunk in Liffe – to develop Liffe’s market solutions business gave the exchange sufficient funds for the time being. He added that the spate of new backers had bought into the exchange’s strategic vision and management principles, making an IPO less important for governance reasons. Despite this, CSFB has been acting as Liffe’s advisers for the past six months.
Unveiling a first-half rise in profits before tax and exceptional items of 43% to $6.8 million, based on revenues of $66 million – up 37% – Liffe chief executive Hugh Freedberg said the exchange had seen strong trading volumes for the year to date. Trading volumes rose 46% with trading open interest of 10.4 million. During July, new universal stock futures (USF), also termed single-stock futures (SSF), saw 1.2 million contracts traded, while Liffe’s other new product, Swapnote, saw 1.8 million contracts traded during the same month.
Liffe’s management said they would start breaking out figures between exchange activities and market solutions – its outsourced technology trading unit that added £10 million to costs – at the end of the year. The move has prompted speculation about a possible sell-off of one of Liffe’s two main business activities. But both Freedberg and Williamson said the two lines were “highly interdependent” on each other.
Pointing to new growth opportunities, Williamson said that deals to provide market solutions to US equities exchange Nasdaq, South Africa’s Old Mutual Market Touch and Japanese futures exchange, Tiffe, were early signs of more deals to come. “We believe that they will become an ever-increasing part of Liffe’s business as we capitalise on our partnership with Nasdaq and the fact that Liffe and Tiffe will both be using the same trading technology in the future.” No figures from these three deals were included in the interim results.
Williamson claimed that Liffe and Eurex had the best technology of any exchanges in the world. “We are way ahead of the American exchanges, which is a contrast to the equity markets,” said Williamson. He added that Liffe plans to “exploit” the “inefficiencies and backwardness of the American derivatives markets”, in a pointed attack at the Chicago exchanges. But he may have a point. Liffe can handle cross-border trades, through Liffe Connect, from more than 23 countries. It clears derivatives through a central clearing unit, the London Clearing House, and is regulated by one national regulator, the UK’s Financial Services Authority.
But Williamson conceded that the opaque nature of guidelines for US institutions trading SSFs as laid out by the Securities Exchange Commission and the Commodities Futures Trading Commission was a cause for concern. Not only is it distracting interest in trading SSFs from 21 December – when the US finally lifts its ban on SSFs – but it is also restraining US investment in European SSFs, due to legal concerns. This is particularly acute for hedge funds, 90% of which are US companies.
The week on Risk.net, July 7-13, 2018Receive this by email