A spokesperson for the LSE’s derivatives exchange EDX London refused to comment on the proposed new contracts, but it is believed that the idea was discussed at a recent board meeting.
It is not clear whether LSE plans to offer futures and options on individual UK shares as well as index derivatives.
“It’s very interesting,” said Brian Daly, managing director at Morgan Stanley and a former Liffe floor manager with JP Morgan. “I’m sure [Xavier Rolet] realises they missed a trick by not buying Liffe a few years ago.”
In 2001, the LSE launched a £600m cash-and-shares bid for Liffe, which was ultimately rejected in favour of a £555m cash offer from France’s Euronext.
It is understood that the LSE is keen to capitalise on demand for equity derivatives, which has held up well during a turbulent year.
One industry insider said: “They’re keen to generate alternative revenue streams. They’ve fallen so far behind in their reaction to Chi-X and Bats that they know from a shareholder perspective they have to get their numbers up.
Alan Dickinson, director of London trading arcade Tower Trading, said any move by the LSE to expand its equity derivatives offering was welcome: “From a competition point of view we welcome it. It depends whether they list individual stocks or index futures. I would have thought it would be individual to start with.”
Eurex gets there first
EDX is not the only exchange wanting to challenge Liffe in UK equity derivatives. On January 18 Eurex launched its first 30 UK equity options, on the most liquid blue chip stocks such as BP, GlaxoSmithKline, Barclays and HSBC.
They are denominated in pence sterling and physically settled through the Crest system of Euroclear UK & Ireland. The contracts compete directly with equivalents offered by Liffe.
“The new UK equity options extend our broad coverage of the Dow Jones Stoxx 600 index components,” said Peter Reitz, a member of the Eurex executive board. “We provide our customers with extended cross-margining opportunities as we offer trading of all the major European blue chip derivatives on one platform. UK equity options will enable our customers to better hedge their exposure to the UK equity market and will simultaneously offer new trading opportunities.”
The options have maturities of up to two years. During the first eight months of trading, supporting market makers can qualify for a 50% revenue sharing programme lasting for two years.
While market participants have welcomed the prospect of more competition between exchanges in this field, they have also warned of the difficulties of generating liquidity when an incumbent has such established products.
One market participant echoed those sentiments, but said that if Eurex could get the market on board, the contracts could prove popular.