London: The LIFFE

LondonThe London International Financial Futures and Options Exchange (LIFFE) was established in 1982 following the removal of foreign exchange controls in the United Kingdom. The creation of LIFFE initially offered market participants a better means of managing their exposure to both foreign exchange and interest rate volatility. LIFFE has since developed a diverse range of financial instruments (known collectively as derivatives). These products can be categorized under the following headings:

  • Short term interest rates (STIRs)
  • Bonds
  • Swaps
  • Equities
  • Commodities               

LIFFE was originally set up as a financial futures and options exchange. In its first ten years it offered contracts on interest rates denominated in most of the world’s major currencies. In 1992 LIFFE merged with the London Traded Options Market (LTOM), adding equity options to its product range. In 1996, it merged with the London Commodity Exchange (LCE), and as a result, a range of soft and agricultural commodity contracts was added to its financial portfolio.

Trading on LIFFE was originally conducted by open outcry. Traders would meet in the Exchange building to transact their business. Each product was traded in a designated area or "pit," where traders would stand and shout the price at which they were willing to buy or sell. In 1998, LIFFE embarked on a plan to transfer all its contracts from the traditional method of trading to an electronic platform, LIFFE CONNECT. Today this is the most sophisticated electronic derivatives trading platform in the world.

LIFFE initiated a wide-ranging restructuring to address the needs of the wholesale market customer, and at the same time meet the requirements of an increasingly technologically driven and competitive marketplace. The first steps in this process were the launch of LIFFE CONNECT in November 1998, and the reinvention of LIFFE as a commercial entity. In February 1999, LIFFE completed the second stage of its restructuring with its shareholders voting unanimously for a corporate restructuring, providing LIFFE with the right framework to become a profit-oriented commercial organization. In order to achieve this, membership and the right to trade were split from shareholding, which simplified a complex share structure. This enabled non-members and third parties for the first time to invest in LIFFE purely for a financial return because, under the new structure, a shareholder was not required to become a member of the market.

In June 2000, following the successful transition of all of its financial and equity futures and options on to LIFFE CONNECT, the Exchange announced its intention to become a market leader by building two complementary businesses. These businesses were founded on LIFFE’s established skills and expertise in running a successful exchange, and in developing the cutting-edge technology of LIFFE CONNECT. The Exchange continued to focus on the core business of providing the products required to manage exposure to financial markets in a cost effective and efficient environment. In parallel, a new technology business was set up to provide technology and associated services to exchanges around the world.

In January 2002 the purchase of LIFFE by Euronext was completed. LIFFE’s focus on short-term interest rate derivatives closely complemented Euronext’s expertise in a range of equity products. The derivatives businesses of Euronext and LIFFE have now been combined as Euronext.liffe. Euronext.liffe is creating a single market for derivatives by bringing all its derivatives products together on a single electronic trading platform, LIFFE CONNECT. Starting with the Brussels and Paris markets in 2003, and continuing with the transfer of the Lisbon and Amsterdam markets, the replacement of multiple trading venues with a single market supported by a state-of-the-art electronic trading system will reduce costs for both Euronext.liffe itself and its customers and facilitate cross-border trading.