Examination of Witnesses (Questions 1-19)
SIR BRIAN WILLIAMSON, MR HUGH FREEDBERG, MR JEAN-FRANÇOIS THÉODORE AND MR GEORGE MÖLLER
TUESDAY 22 JANUARY 2002
1. Good morning, Sir Brian. May I welcome you and your colleagues and the "all ticket" crowd to the Committee this morning. We are delighted to see such a turnout. Could you identify yourself and your colleagues?
(Sir Brian Williamson) I am Brian Williamson, and I am Chairman of LIFFE. On my right is Hugh Freedberg, Chief Executive of LIFFE. On my left is Jean-François Théodore, who is Chairman and Chief Executive of the Managing Board of Euronext and on his left George Möller, Chief Operating Officer of Euronext NV, which is a Dutch company listed on the Paris Stock Exchange.
2. May I open by asking you why LIFFE accepted the Euronext bid, even though it was reported that it did not submit the highest bid for LIFFE and to what extent were the values of the bids a factor in the Board's decision?
(Sir Brian Williamson) It is correct to say it was not the highest price. It was, in our view, the highest value, and value was clearly the most important thing for us. If you remember, we were not engaged in the business of selling LIFFE. We had a business plan which had only recently been approved by our shareholders, but if there was interest, as indeed there was, in LIFFE by parties who could add value to that, we had a duty not only to look at those but, if there was a value above that which we placed on LIFFE, a duty to put that to our shareholders, which is what we did. We regarded the Euronext deal as being of higher value than that of the London Stock Exchange, and the other one of the remaining three.
3. Could I ask Mr Théodore: why did Euronext decide that LIFFE should remain in London? Is this a vote of confidence in London as a centre and are you committed to keeping LIFFE's managers and operations in London?
(Mr Théodore) Yes, indeed, first, it is a vote of confidence in LIFFE and, as the Committee might remember, from the very foundation of Euronext in March 2000, we said when speaking about derivatives that the best partner would be LIFFE and the best system to work with would be CONNECT, and that was the perfect fit between LIFFE and Euronext. That is the first point. We are very committed to developing LIFFE's business in London. Our derivatives business will come under the umbrella of LIFFE. As a European exchange, we think that having a strong presence in such a strong pre-eminent financial centre as London, rooted in London financial life, is of key importance to being competitive.
4. Sir Brian, was the fact that Euronext was based in the euro area for you a consideration in its favour against the bid from the London Stock Exchange?
(Sir Brian Williamson) No, it was not. I think the fact that it was in Europe was a factor, yes, but then so was the London Stock Exchange.
5. Has the introduction of the single currency necessarily had an adverse impact on the City of London?
(Sir Brian Williamson) I do not believe so.
6. Have here been indications that London has benefited as a result of the euro's introduction?
(Sir Brian Williamson) In LIFFE's particular case, yes, because we trade the vast majority, almost 100 per cent, of the interest rate futures and options based on the euro. From that limited perspective, from LIFFE's point of view, it has been greatly to our advantage.
7. Sir Brian, LIFFE has had quite a short but pretty full history so far. You joined it in the middle of 1998, did you not?
(Sir Brian Williamson) I think perhaps a little bit earlier than that. I was one of the founding directors in 1979/80 and the exchange then started in 1982. Then I was the second chairman until 1986 and returned to the exchange three years ago.
8. Why was a decision made in 1998 to end mutuality and move to a shareholder basis?
(Sir Brian Williamson) I think the mutual basis of LIFFE had become rather old-fashioned and it was necessary to move at a much faster speed than LIFFE had been moving, and we were in a very competitive market and LIFFE had failed in many respects. So part of the programme which was put in by people who helped me when I joined there was actually to make it much more modern in a number of respects, including governance. That was the reason. As a subsidiary or helpful sidelight on that, I think also there was a view that with exchanges that were mutually owned sometimes the people, the members, were actually acting in their own interests and not in the interests of the markets which were using the exchanges. I think that has been borne out more generally across the world now.
9. When was the executive share option scheme introduced?
(Sir Brian Williamson) There are a number of schemes and I was responsible pretty early on for introducing some of them. The major ones were introduced by Battery and Blackstone, our United States investors.
(Mr Freedberg) Battery and Blackstone became shareholders formally in LIFFE in November 2000 and at the same time that the EGM approved the issue of new shares and the raising of new share capital, the shareholders also approved the allocation of 5.5 million shares for share incentive schemes for the board then to allocate in which way it saw fit across the various share schemes to employees and management.
10. You and Sir Brian both acquired shares under the executive share option schemes, is that right?
(Sir Brian Williamson) Yes, we did, a substantial amount.
11. What happened to those as a result of the sale?
(Sir Brian Williamson) If you are asking me how much I have made out of this, perhaps the easiest way to say it is just short of £5 million net of tax; that is, including both the option schemes and of course the shares I own in my own right and have invested in.
12. And Mr Freedberg?
(Mr Freedberg) £4.4 million net of tax, including shares that I have bought in my own right.
13. There is an interesting sentence in the document you supplied us with which says that there was no imperative to sell the company. You would stand by that?
(Sir Brian Williamson) Yes.
14. It goes on to say that the board felt that only an offer that would realise very substantial shareholder value would be sufficient to justify such a move. You feel comfortable about saying that, despite your own position in relation to that?
(Sir Brian Williamson) Certainly, yes.
15. You are quite comfortable with that?
(Sir Brian Williamson) Very comfortable with that.
16. I have a question for Mr Théodore. Does Euronext have any current plans or any current intention to introduce euro-denomination for derivatives that are currently traded in UK sterling?
(Mr Théodore) Not at all. The LIFFE product range is very successful. Of course it already includes the EURIBOR contract, which is the star contract of LIFFE. We will be going on with LIFFE management to develop LIFFE projects like single stock futures and other types of projects but we will not change the existing contracts in Europe.
17. Those are existing contracts?
(Mr Théodore) Yes.
18. Can you anticipate a time before Britain joins the euro, or if Britain joins the euro and it is in, when you, as an organisation, will want to change to euro denomination the UK single stock indices?
(Mr Théodore) We do not have, as management of the organisation, any opinion on that question. We might develop US dollar products or other types of products. We are there to meet market demands, what market users want. Most of our users are in London and we will listen to them.
19. Just to be clear, derivative contracts are currently trading in UK sterling but there are no plans to change that to euro denomination?
(Mr Théodore) None whatsoever.
(Sir Brian Williamson) Unless the market chooses to change.