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April 30, 2002

Nasdaq Liffe's Mission

By Editorial Staff

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  • Nasdaq Liffe's Mission

If you can't beat 'em, join 'em.

Tom Ascher was a vice chairman at the Chicago Board Options Exchange in 1998 when its venerable floor trading tradition first felt the threat from the all-electronic International Securities Exchange. Four years later he is the new chief executive of Nasdaq Liffe Markets, an all-electronic exchange for single stock futures.

The new exchange, formed last year, is a joint venture between Nasdaq and Britain's London International Financial Futures and Options Exchange, or Liffe, an electronic derivatives exchange. It is slated to start up sometime this summer, although, as Traders Magazine went to press, it was still awaiting a final regulatory decision over margin rules.

Ascher is no Luddite, of course. After leaving the CBOE in 1999 after 13 years, he joined Interactive Brokers, a tech-savvy Chicago-based direct access broker and equity and derivatives trading house. Under his watch, IB was awarded a contract to use its systems to link the nation's options exchanges.

At IB, Ascher was supportive of electronic options trading, but decried the ISE's one stock/one market maker model. He told the Securities and Exchange Commission the ISE could, in effect, devolve into a private club used by its members to internalize order flow. The NQLX is a multiple market maker exchange.

The NQLX, based in New York, is expected to face three competitors for the business of trading SSFs: OneChicago, a joint venture between the CBOE and the Chicago Mercantile Exchange; the American Stock Exchange; and Island Futures, a unit of the Island ECN.

The product, a futures contract based on U.S. shares, will join a host of financial futures including those based on foreign currencies and debt instruments. A futures contract represents the obligation of one party to buy and another to sell a certain amount of a particular commodity at some fixed date in the future. Traders Magazine technology editor, Peter Chapman, put these questions to Ascher about Nasdaq Liffe.

Traders: Liffe already offers trading in single stock futures on U.S. stocks in the U.K. In this globally inter-connected world, why is it necessary to start up a second exchange in the U.S.?

Ascher: It may be a globally inter-connected world, but it's not a globally regulated world. Liffe's USFs (Universal Stock Futures) are not open to all players. And they're certainly not open to the players in the largest capital market in the world. U.S. players cannot trade USFs.

Traders: That's the law?

Ascher: The CEA (Commodity Exchange Act) does not include approval of any overseas products. I don't know if they will ever get approval.

Traders: What does Nasdaq get out of this?

Ascher: For both partners, NQLX is a natural, logical extension of their business lines. NQLX is an entry vehicle for two established players. Liffe moves into North America. Nasdaq moves into derivatives.

Traders: You view the single stock future as a substitute trade for the underlying equity?