The London Stock Exchange (LSE) has abandoned its plans to introduce contracts for difference (CFD) trading on its order book because of the current economic climate.
The exchange planned to offer a combined CFD and equity order book, where exchange-traded CFDs based on FTSE 100 equities that would trade with and alongside their underlying cash equities. This would, for example, allow investors to hedge their equity positions. Clearing services for the new offering were to be provided by the LSE’s incumbent clearing house, LCH.Clearnet.
The service was dependent on the contribution of several prime financing partners, which the LSE says were all leading financial houses, whose job it would have been to ensure CFD trades and underlying equity trades were matched seamlessly. However, due to the current economic climate and reduction in trading activity, the prime financing partners’ positions has now changed.
“The prime financing partners were required to build a system that would interact with the combined order book and ensure the underlying equities and CFDs were matched with ease,” said an LSE spokesperson. “However, given the current economic environment, our partners now have unforeseen resource and technological constraints.”
Contracts for difference pay the holder the difference between the price of the underlying equity at the start of the contract term and the price at the end.