All change please...

All change please...

The past week saw many more examples of something that we all knew in our heart of hearts. The derivatives industry is in a dynamic phase.

The most explicit examples were in changes at the top of some of the industry’s best known firms.

Chris Gibson-Smith, the long-time chairman of the London Stock Exchange, (with no small amount of modesty) waited ‘til the end of his address to the British exchange’s AGM on Wednesday to step down from that position.

Gibson-Smith, who will stay on until a replacement is found next year, has steered the LSE in his eleven years through many defining chapters in the exchange’s long history.

He saw off takeovers from Deutsche Boerse, Nasdaq OMX and even (randomly) Macquarie and worked on the LSE’s bid to merge with Canadian exchange that was eventually killed by Canadian authorities.

More recently, Gibson-Smith has overseen the LSE’s acquisition of LCH.Clearnet as well as index firms FTSE and Russell (due for completion around the end of this year).

Yet one of his greatest legacies could be something that has yet to come to light – namely the LSE’s currently top secret futures exchange.

LSE chief Xavier Rolet has often said it was a mistake the LSE did not buy Liffe in 2001 (because it was outbid by Euronext) and this new venture could be the move that sets up the exchange in what will be the most interesting asset class for the next few years at least.

Separately, last week also saw Terry Smith step down as chief executive of Tullett Prebon to be replaced by John Phizackerley, the European chief executive of Nomura.

Phizackerley comes with a good pedigree. In another life, he could have been a strong candidate to replace Gibson-Smith given the strong ties between Nomura (or what was Lehman) and the LSE - Rolet himself was formerly with the bank before it collapsed.

But ‘Phiz’ inherits a Tullett faced with challenges. Bank deleveraging and dwindling risk appetite has crushed volumes and this has hurt the inter-dealer brokers more than anyone.

Michael Spencer, another industry veteran, spelled out the predicament brokers find themselves in when last week he reported thin quarterly broking revenue barely mitigated by improvements in tech revenue.

The inter-dealer brokers are feeling the squeeze of both weak markets and bank retrenchment in the face of draconian regulation.

Phizackerley is no spring chicken but some fresh blood will be good for Tullett, and other firms and institutions could do worse than following Terry Smith’s lead.

The futures industries in the US and Europe particularly are crying out for a new generation of individuals and firms to come through and embrace the many changes taking place in this market.

There is some evidence of this in brokerage. Some of the large traditional players have been pulling back strategically in some areas which has created opportunities for firms that have traditionally been peripheral to move in and clean up those clients being kicked out by banks.

Jefferies, Wells Fargo and others are quietly getting their systems and teams right to maximise on what looks like a once in a generation window of opportunity.

Regulation is changing the market for good and it is incumbent on the industry to embrace that change. If you can’t beat them, join them.

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