Traders across London started showing up for work around midnight as dealing desks opened in the early morning to react to the U.K. election.
London’s Liffe derivatives exchange opened contracts on gilts, FTSE 100 Index and short-sterling futures at 1 a.m. today for the first time ever. Brokers brought in staff to cope with demand as the voting result tempts dealers with the promise of market volatility. FTSE 100 futures lost 2.3 percent to 2,580 as of 5:28 a.m. London time as a national exit poll projected David Cameron’s Conservative party winning more seats in Parliament than Prime Minister Gordon Brown.
“There’ll be some frenetic activity,” said David Buik, a market analyst at BGC Partners Inc. who has spent more than 35 years as a broker. He said his firm was expected to have about 50 to 60 employees in from 1 a.m.
Whichever party forms a government must deliver a plan to reduce the U.K.’s budget deficit, which at more than 11 percent of gross domestic product is the largest in the Group of Seven nations. Standard & Poor’s and Moody’s say Britain’s AAA grade is under threat without convincing proposals to tame the nation’s finances. Concern that spiraling government debt will derail the economy roiled markets this week and wiped $250 billion off the value of European equities.
Buik, who hosted an election night party, had planned to eschew champagne for water so he could come straight to BGC’s trading floor on the 19th story of the Barclays Plc building in London’s Canary Wharf.
Six miles across town in the Mayfair district, Sebastian Jones, associate director of Berkeley Futures Ltd., had aimed to arrive at the firm’s Savile Row offices after midnight.
“It will be a busy night,” said Jones, 32. Many clients “have already reduced their exposure to ensure they’re well placed to take fresh positions once a clear result becomes apparent.”
Cameron’s Conservatives were forecast to have won 305 seats in the 650-seat House of Commons to Labour’s 255 and 61 for Nick Clegg’s Liberal Democrats, the national exit poll showed. It would be the first election since 1974 when no party gained a majority. Without a majority, Brown or Cameron may need the backing of the Liberal Democrats to govern.
“This election is probably the most important in the lives of current traders because the problems faced by the new government will be the hardest since Margaret Thatcher took over,” said Jones. “We expect volatility to be high.”
The pound had fallen 7 percent against the dollar this year on concern the election won’t deliver a clear result. Cameron’s Conservatives have said they plan to tackle the deficit immediately, while Labour and the Liberal Democrats favor delaying spending cuts until 2011 to protect the recovery. The U.K. economy grew 0.2 percent in the first quarter, half as much as forecast, the Office for National Statistics said April 23.
“Volumes should be good because it’s potentially a major change in British politics,” said Dirk Hoffmann-Becking, banking analyst at Sanford C. Bernstein & Co. in London. “It will be fun, it doesn’t happen that often.”
Liffe, the futures market owned by NYSE Euronext, offered three-month sterling interest-rate futures, gilt contracts and FTSE 100 Index futures three hours after polls close. It’s the first time the exchange changed its trading hours for an election. The bourse will have six employees monitoring the process, said spokesman James Dunseath.
On the fourth floor of ICAP Plc’s offices in London’s Square Mile, more than 25 brokers will work through the night as results are transmitted on the plasma-screen televisions that line the room. They’ll be joined by a fresh shift at 6 a.m. Michael Spencer, chief executive officer and founder of ICAP, the world’s biggest broker of transactions between banks, recently announced his resignation as Treasurer of the Conservatives.
“This is the first time I’ve pulled an all-nighter for an election,” said Don Smith, fixed-income strategist at ICAP, who has booked a hotel room near the office and doesn’t expect to return home until this evening. “It’s going to be a very, very interesting night.”