Mixed feedback, yet liffe comes in
The London International Financial Futures and Options Exchange (LIFFE) delegation visited Warsaw last week to lay the groundwork for the introduction of trading in Polish interest rate futures on the London exchange, which is a member of the Euronext alliance. In a controversial measure that few experts see as likely to prove successful, LIFFE would initially offer Warsaw Interbank Offered Rate (WIBOR) contracts and could extend its offer at a later date.
The instruments are currently on offer at the Warsaw Commodity Exchange (WGT), where transactions in 1-month and 3-month WIBOR contracts take place "sporadically," according to Jacek Bąkowski, chief expert in futures contracts at WGT. The low liquidity of the papers on the local exchange makes analysts cautious as to the chances of trade taking off in London.
According to Artur Czerwoński, asset manager at CA-IB Investment Management, there is little reason for domestic investors to become interested in the contracts once they are listed in London. Czerwoński said that he was not familiar with the details of the LIFFE proposal, but described the idea as "interesting" and envisaged potential interest from foreign banks.
A Warsaw-based trader, who declined to be named, said that he could not see banks alone creating enough demand to drive the market for WIBOR futures. He was, however, at a loss to guess what other category of investors LIFFE might be targeting.
"But I don't know where else they're likely to find an interest," he added. LIFFE is thought to hope for interest from individual liquidity providers and banks that do not trade in the złoty.
WGT's Bąkowski said that he had seen the specifications of the LIFFE offering and was critical of its parameters. He explained that the contracts would be denominated in Euro, which would discourage local investors and possibly add the element of exchange rate risk. He described some people's reactions to the news of LIFFE's plans as "enthusiastic."
"There seems to be a belief that when someone from outside (the country) does things, it has to be good news," he said. "But in this case I don't see any reason to think so."
"If they (the LIFFE delegation) are in Warsaw talking to the local financial institutions, they must be hoping for business with them," Bąkowski said. "But I don't think their plans are suited to the needs of the local market."
According to analysts, the product that LIFFE is looking to offer would have limited appeal to investors, apart from the most avid risk-takers. Plans to offer the Euro-denominated WIBOR futures are seen by many as a desperate attempt by the beleaguered exchange to win business.
LIFFE press office was unable to confirm or deny the reports of its WIBOR plans.
