London Stock Exchange Group (LSE:LN), where the bulk of FTSE 100 Index stocks trade, is taking on NYSE Euronext's Liffe market with a plan to offer futures and options on the gauge, according to people familiar with the situation.
LSE, which in 2001 tried and failed to buy London-based Liffe, will offer derivatives based on the benchmark index next year, said the three people, who declined to be identified before a formal announcement. LSE spokeswoman Lauren Crawley- Moore and Liffe spokesman James Dunseath wouldn't comment.
"They should have done this five years ago," said Mamoun Tazi, exchange analyst at MF Global Ltd. "They've been seeking a way to come back after they lost Liffe. LSE still owns more than 50 percent of trading in FTSE 100 stocks and the people who trade derivatives on Liffe are already connected to LSE."
The exchange, which trails rivals NYSE Euronext and Deutsche Boerse (DB1:GR) in derivatives trading, is trying to diversify under Chief Executive Officer Xavier Rolet, who took over from Clara Furse in May. Furse was beaten by Euronext (MDT) in the 2001 battle to buy London-based Liffe, the world's fourth- largest derivatives exchange. NYSE Liffe lists futures and options on the U.K.'s FTSE 100 and other European indexes.
Tazi has a "sell" rating on LSE, which has rallied 40 percent in 2009. The stock slipped 0.5 percent yesterday to 713 pence.
Licenses to trade derivatives based on the benchmark gauge for U.K. stocks are controlled by FTSE, an independent company jointly owned by LSE and Pearson Plc's Financial Times newspaper.
LSE may offer the futures on its EDX London Ltd. exchange, the people said. In November, the average daily number of contracts traded on LSE's two derivatives markets, EDX London and IDEM, was 508,607. That compares with 4.3 million on NYSE's Liffe's European products and 9.4 million on Eurex.
LSE started a new trading system earlier this week and Nordic derivatives for EDX. In May, Toronto-based TMX Group (X:CN), owner of Canada's main equities and derivatives market, agreed to pay 4.35 million pounds ($7.1 million) for a 19.9 percent stake in EDX after LSE agreed to license TMX's Sola trading technology.
"I see terrific opportunities for EDX in the U.K. derivative market that it hasn't even begun to explore," TMX CEO Thomas Kloet told reporters in Toronto on Dec. 7. In European derivatives, "there are a number of opportunities there that between ourselves and LSE we can begin to develop. We see a lot of opportunity even beyond the Nordic markets."
The new trading system for EDX replaces platforms provided by Nasdaq OMX Group (NDAQ). LSE started EDX in 2003 with Sweden's OMX exchange, now part of another of LSE's rivals, New York- based Nasdaq. It bought the stake back when OMX was taken over.
As LSE parted with Nasdaq OMX, the U.K. exchange and FTSE said they will offer investors the chance to trade derivatives based on indexes including FTSE Sweden 30, FTSE Denmark 20 and FTSE Finland 25, going head to head with Nasdaq, which offers contracts based on the benchmark OMX Stockholm 30 Index.
If LSE "succeeds this will broaden the range of their products and give them new revenue," said MF Global's Tazi. "But Liffe won't sit still either."