Irish Futures and Options Exchange to cease trading

THE Irish Futures and Options, Exchange, set up seven years ago by 25 institutions and stockbrokers, is to close down after failing to generate sufficient turnover to justify its continued existence.

It is understood that the board of IFOX agreed on a voluntary winding up two weeks ago and that letters convening a winding up meeting on August 28th were sent yesterday to the exchange's 25 shareholders. IFOX acting chief executive, Mr Fergus Sheridan declined to comment yesterday, but it is understood the founder shareholders may recoup about a quarter of their original £60,000 investment when IFOX is liquidated.

There are currently five contracts listed on IFOX - short, medium and long dated gilts, DIBOR and a swap contract - but in reality the only real turnover has been in the medium gilt and DIBOR contract.

The medium gilt contract was introduced last year mainly to provide a hedging opportunity for the newly established gilt market makers. But the market makers - who trade Irish gilts on their account - have largely ignored IFOX and have instead used the sale and repurchase "repo" market and, more commonly, the inter dealer broker Garban Butler to hedge their positions.

The DIBOR contract was popular during the periodic bouts of interest rate uncertainty in the past few years and particularly in the period leading up to Ireland's devaluation within the ERM. But the occasional strength of these two contracts has not been sufficient to provide adequate turnover for IFOX, leading to the decision by the exchange's board that IFOX had no future in its current form.

The head of domestic debt at the National Treasury Management Agency, Mr John Corrigan said that the failure of IFOX did not send wildly encouraging signals" to overseas investors looking at Ireland and Irish gilts. However, he added: "The reality was that there was no commercial demand for IFOX contracts; market makers found more efficient ways to hedge their positions."

It is understood that IFOX held preliminary discussions with both Garban Butler and the Irish Stock Exchange about a possible partnership but that these discussions came to nothing.

Ever since its inception in 1989, IFOX - the brainchild of NCB Stockbrokers and its then chairman, Mr Dermot Desmond - has suffered from a lack of trading volumes and the consequent shortage of cash flow. Turnover occasionally rose to what would have been seen as acceptable levels - especially in periods of interest rate fluctuations where hedging on IFOX was more popular.

Most of the major financial centres have hugely successful futures markets, with LIFFE in London and the MATIF market in Paris probably the two most successful. The Irish market suffered from being simply too small to accommodate a stand alone futures market while even IFOX's own shareholders found more attractive hedging mechanisms than the contracts offered by IFOX.

"All that ever really happened on IFOX was that a few institutions traded with each other," said one shareholder who added "I don't mourn IFOX's passing, it was a good idea at the time but a market like Dublin doesn't really need something like IFOX."

The exchange also suffered from the fact that only the 25 shareholders were allowed to trade on the exchange, with own account traders and smaller institutions - who might have provided increased turnover - excluded from direct trading.

Those founder shareholders paid £60,000 for their seats on IFOX as well as providing £265,000 each in guarantees to cover any default by other members of the exchange. As things worked out, there were never any defaults - there was simply never enough business for any of the members to reach such a position.

The founder shareholders are likely to recoup about a quarter of their investment, but four full time and one part time job at the exchange will be lost.