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. Last Updated: 07/27/2016

Exchanges Merge, but Coats Will Still Clash

LONDON -- It's the garish jackets that worry the staid English commodity traders.


September sees a landmark market merger between the racy London International Financial Futures Exchange, or LIFFE, and Europe's oldest tropical products mart -- the smaller, 40-year-old tradition-bound London Commodity Exchange, or LCE.


Traders in coffee, cocoa and sugar agree that in an era of cutthroat competition, their exchange needed a merger to rescue it from the possibility of a U.S. takeover and ensure long-term survival.


Then, for traditionalists, came the culture shock.


Word went around that come September LCE traders must conform with practice on big world exchanges like LIFFE and don lurid jackets, color coded to identify the firm they work for, when they enter the trading pits.


"We wear colors in the pit to identify which trader belongs to which company. By his jacket you can tell from miles away -- you don't even have to recognize his face -- which company he works for," said a LIFFE options trader.


For traders at LIFFE, pronounced "Life," where trading is in crowded open outcry pits, that may be necessary.


But it's different in the sometimes relaxed commodity community, where volumes are just a fraction of those in financial futures and where dealers deal in a ring rather than a pit, and traders say the jackets are unnecessary.


"Down here at the ring we all know each other ... We are so close that everyone knows every one else's grandparents," said an LCE coffee trader.


"At the LCE we could trade blindfold," said another.


The gulps over the claret among older LCE men reflected concern about marked differences of style, and scale, that promise to shake up a quiet world.


The merger of the two exchanges, secured after LIFFE offered ?10.3 million ($16.04 million) for the LCE, will create on Sept. 16 the only organization in the world to trade a complete range of financial, commodity and equity futures and options, according to Robin Woodhead, LCE chairman.


Traders and analysts see the merger as a boon to liquidity and turnover. They argue that on a quiet day in the financial pits, locals, who trade on their own books, will seek excitement and cross to the pit of the volatile coffee market.


But problems are expected when LCE meets LIFFE.


"Trading in financial futures is impersonal. ... The commodities business has always been more personal. You can touch, eat and drink commodities. ... It is a more human market and those are the trading attitudes that prevail," said one commodity broker.


Traders and brokers say they fear the dilution, for instance, of controls that the LCE management has over rules, regulations and the degree of representation the commodity markets will have in LIFFE policy-making.


But Woodhead said traders should not be concerned.


"Clearly, for LIFFE it is a very important step. ... And one of the reasons for merging with the LCE was to maintain the expertise of the LCE," he said.


"For that reason there will be a separately identified commodity division within LIFFE."