Working towards an April 12 deadline for the start of futures trading on its homegrown trading system, the London International Financial Futures and Options Exchange (LIFFE) is touting a new generation electronic trading platform-dubbed LIFFE Connect. While the migration to full-blown electronic trading during normal daytime business hours is a radical change in itself, the exchange is also opening access to its systems so that member firms can route orders electronically through a common interface.
In the past, member firms had to use a telephone or proprietary terminal provided by the exchange to route orders to LIFFE. When the exchange traded via open outcry, orders were routed via the telephone to the exchange's APT (Automated Pit Trading System). Orders were also entered via a closed LIFFE workstation to trade other contracts. This required member firms to maintain an expensive and complex integration between their front- and back-office operations.
Today, LIFFE Connect offers a flexible open architecture with a customizable Application Program Interface (API). Developed at a cost of $17 million for equities and $41 million for futures, one of the system's earliest design features was that it accommodated the varied trading and monitoring programs used by its primarily international members. To encourage development, LIFFE also worked with 16 Independent Software Vendors (ISVs) to develop a variety of interfaces for the exchange's system. Their goal was to deliver a number of front-end screen formats needed for trading, risk management and analytics to a varied membership base in a completely electronic environment.
While choosing from among 16 certified vendors is expected to produce some heated competition for desk space between LIFFE's almost 200 members, the process may be more orderly than many expect. That's because different types of members-brokerage desks, locals, market makers, banks and proprietary traders-have different software needs.
"Our customers want choice and this gives them the opportunities they need if they are to meet the challenges of fast evolving markets," according to LIFFE's manager of commercial services Fraser Cowie. One exchange study showed that its 200 member firms employ some 300 separate systems to trade equities and futures electronically.
Some ISVs offer trading, theoretical pricing, market making functionality and risk management in a single package. Another vendor positioned their software as "a front-end for market-makers and brokers who have already experienced pain, and who now want the best front-end weapons that money can buy."
Since many LIFFE members increasingly trade on other European screen-based systems, inter-exchange access also should be a factor in choosing an ISV, some futures traders said.
This may provide an advantage for some ISV's, such as OM Technology (that has access to 12 markets), Trading Technologies, GL Trade, and Real Time Systems that link to other exchanges and have longer histories trading derivatives. Others, such as Datastream/ICV and Royalblue Technologies, also offer access to other exchanges, albeit primarily securities.
This push for international connectivity is one reason why EasyScreen Plc., a provider of front-end trading systems to electronic exchanges, announced in March that it entered merger discussions with PAT Systems Ltd. If the proposed merger is completed, the new company will have co-ordinated access to LIFFE, MEFF, EUREX and the next phase of electronic trading scheduled for June 1999 at the CME. LIFFE's Cowie added that there has been a "high degree of interest" from more vendors in France, Germany and the Netherlands to provide added software interfaces as the number of product offerings expands on the Connect systems.