The futures industry’s history is rich with inspiring pioneers who paved the way for its growth and global success. While most look to Chicago and the likes of Leo Melamed and Richard Sandor as the founding fathers of financial futures, and deservedly so, the expansion of these derivatives markets in Europe and beyond also owes a great deal to the individuals responsible for the creation of Liffe (London International Financial Futures Exchange), which opened in September 1982.
As with any institution challenging the establishment, much of Liffe’s success was down to a number of people who dared to think differently. Among them was Sir Brian Williamson, who sadly passed away suddenly last month. His passing, and that of former Liffe CEO Hugh Freedberg in August, offers an opportunity to take stock of the significant contributions made by these two individuals, and others, involved in the creation and expansion of Liffe.
Upon its opening in 1982, most of the conservative institutions of the City of London were, at best, bemused by and, at worst, downright antagonistic about the upstart exchange. Who were these people in their colourful jackets waving their hands and shouting at each other on a trading floor? And how dare they congregate at the Royal Exchange, a building that traces its history back to 1566 as London’s first purpose-built centre for trading of stocks!
Williamson knew what it was all about. He began his career in financial services in the mid-1970s, spent time trading futures for Gerrard and National in Chicago, and recognised the potential for similar markets in London. By the time of the founding of Liffe, he had become a managing director at the discount house and set up commodities broker GNI. He was appointed chair of the exchange, for the first time, from 1985 to 1988.
This was a time of rapid expansion for the exchange. Having started with short-term UK interest rates, it began adding to its list of products on a regular basis, becoming the home of contracts such as the Italian BTP and the German Bund.
In 1993, Liffe acquired the London Traded Options Market from the London Stock Exchange for £1 (LSE having decided there was no future in options) and ‘merged’ with the London Commodity Exchange, which traded softs and agricultural products, in 1996. By the end of that year, Liffe was the biggest futures exchange in Europe, despite competition from newer financial futures exchanges Matif in Paris and Deutsche Terminboerse (DTB, Eurex’s predecessor) in Frankfurt.
That position was not sustainable for long, however. DTB began a systematic campaign to gain market share in its home country Bund futures contract that was by then Liffe’s busiest product. A case study in how to successfully switch liquidity from one market to another (a rare feat), DTB went from having 25% of the Bund futures market in the middle of 1997 to more than 50% in October, and by the end of the year, Liffe was clinging on to just 5%. Financially, Liffe went from a profit of £57m in 1997 to a reported loss of £64m in 1998.
Stories of traders attending meetings in the Liffe offices and asking to be able to connect their laptops so that they could trade DTB’s Bund contract confirmed that Liffe was not doing well. Cue Williamson being brought back in for his second stint at chairman in 1998. Williamson is quoted as saying of the period: “In this market, you can’t be arrogant, you can’t be alone, you can’t be aloof. For a while, Liffe was all three.”
He set about plotting a new course for the exchange, appointing Freedberg as CEO. The pair embarked on an efficiency drive to cut costs significantly and, simultaneously, develop a trading system to rival Frankfurt - Liffe Connect. This complete system was built in months and the Liffe leaders recognised the merit of allowing third-party software vendors to connect to the trading system – a boom time for ISVs.
They also split the exchange into two separate businesses, the exchange itself, and the technology side. Thanks to investment from Blackstone Group and Battery Ventures, Liffe Connect was expanded as a service, which was sold to other exchanges as far afield as Chicago and Tokyo.
Liffe also captured the majority of the Euribor market, grabbing the entire euro money market futures business within weeks of the euro's launch. "That was the first time I realised we had a real chance not just of saving the exchange but of actually re-establishing our past success, " Williamson said.
Of course, the growth of electronic trading led to the ultimate closure of the open outcry trading floor (which had moved from the Royal Exchange to Cannonbridge in 1991). The last of the trading pits closed in November 2000 and 20 years after it opened, traders were connecting directly to Liffe’s trading system from some 25 countries around the world.
Liffe’s style was in sharp contrast to that of the more traditional London Stock Exchange. My first task as a reporter for FOW back in the summer of 1987 was to attend a press conference held at the LSE by then-chair Sir Nicholas Goodison in the stock exchange’s offices on Old Broad Street where he told the gathered press that LSE was intending to merge with Liffe. The journalists in attendance were then swiftly invited across the road to the Royal Exchange where the more outgoing and charismatic Williamson promptly put an end to the discussion.
When Liffe, on its uppers, tried to merge with LSE in 1998, LSE itself rejected the move. Then, with Clara Furse at the helm when Liffe was once again in profit, LSE thought it was bound to succeed in a new bid. But that bid also failed because of an inferior offer compared to that from Euronext. Williamson oversaw the sale of Liffe to the pan-European exchange in 2002 for £555 million and secured future positions for himself and Freedberg.
Famed for his strong business acumen, as well an adventurous spirit and interests that included tobogganing and high-altitude ballooning, Williamson was knighted in 2000 and inducted to FIA’s Hall of Fame in 2007, in recognition of his contribution to the global futures and options industry.
