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Almost exactly 10 years ago Liffe, the London International Financial Futures Exchange, was on the verge of collapse. Because of the way it was run internally, it had stuck with floor trading far longer than was wise and had seen an abrupt migration of its key business in German bonds back to Frankfurt where its rival futures market Eurex had gone electronic before it.
It was a shock and the loss of business brought the exchange to the point of collapse. It was saved by Sir Brian Williamson, parachuted in by the Governor of the Bank of England, Eddie (now Lord) George, and his key appointment Hugh Freeburg. They closed the floor, went electronic, slashed costs, courted the customers and managed to survive.
What going electronic meant, in layman's terms, was that instead of the world having to come to the market, the market could go to the world. Instead of customers having to have a presence in London, so they or their agent could deal on the floor, the market - in the shape of an electronic terminal - could go to them. It did so in over 20 countries.
But even if you understand the process, the sheer scale of the transformation is nonetheless astonishing. Ten years ago, 50,000 lots traded was a reasonable day on Liffe and 100,000 lots was cause for cracking out the champagne in the chairman's office. Today, a typical day's volume is 4.5 million lots - an increase of almost 100-fold in less than a decade. And a great deal of that is algorithmic trading - hedge fund computers plugged into the Liffe system which buy and sell instantaneously to exploit the most minute movements in price.
On the way, of course, like most good British ideas, Liffe has been sold to an overseas owner - first to Euronext, the Paris-based exchange,which in turn last year decided to merge with the New York Stock Exchange. Liffe was what attracted the Americans to Euronext - they could never quite admit to being excited about owning the stock markets in Brussels, Amsterdam or even Paris - and today it accounts for 23% of the group's income. Though it is not disclosed, that is probably a significantly larger slice of the profits.
Its problem for the future is that it is in a thuggish global market place where the Chicago Mercantile Exchange (CME), following its merger with the Chicago Board of Trade (CBOT)and Nymex, the New York oil futures market, accounts for over 9% of US futures business and is the elephant in the room.
The logical response would be for Liffe, which focuses on short-term financial contracts, to merge with Eurex, the Swiss German exchange which has longer-term contracts - replicating the different market positions of CME and CBOT before the American merger. This would create a European champion to match the American juggernaut.
The likelihood, however, is that the European Union competition authorities would not see futures as a global market and therefore would not allow such a merger - so no one has the appetite for trying it.
Liffe is therefore preparing to fight its own battles, which is why it moved recently to get control over its clearing arrangements - currently outsourced to the London Clearing House. Most exchanges control their own clearing - only in London was it decided that clearing should be a central service offered to many exchanges. Even that was a decision arrived at by default and based on what was happening in the equity markets rather than a properly thought-through policy.
Now Liffe is moving to reverse that by creating its own clearing mechanisms - still within the LCH, which will continue to provide a banking service, the financial guarantee that counterparties will honour transactions - but will no longer dictate the technology.
That leaves Liffe free to develop and acquire where the mood takes it, with Asia obviously the major focus. And it leaves the London Clearing House to wither on the vine - cut loose by Liffe and soon to lose the business of the London Stock Exchange, which is quietly arranging things so it will do the bulk of its clearing through Italy, the natural consequence of last year's merger with Borsa Italiana which already handled its own clearing and settlement.
LCH has been trying to negotiate a merger withAmerican clearing house DTCC but how long does it take to do a deal? The fact that these talks have been limping on since last autumn suggests a distinct lack of appetite on behalf of someone - probably the Americans as they are the ones with the wallet - which indicates that the future for LCH is bleak .
In contrast, the future for Liffe looks good - even if its major competitor is the world's biggest exchange, the CME, and it potentially faces a challenge from Rainbow, a trading platform being developed by the investment banks.
