CLOSING down the Irish Futures and Options Exchange after seven years unsuccessful trading was probably an inevitability, but the closure of Ireland's first futures market has still sent some negative signals abroad whatever gloss the IFOX shareholders put on it.
Most of those who have been willing to speak about the expected closure of IFOX have said that it had become a market without a function, with most investors finding alternative ways of hedging their interest rate and exchange rate positions. From a peak annual turnover of 27,000 contracts in 1990, turnover had dwindled to just 7,000 contracts not enough to justify the exchange's continued existence.
As Goodbody's Mr Mick Dunne has put it "Any time IFOX came close to generating acceptable volumes, it was due to a concerted effort by, a small number of institutions.
Even the introduction of market making in Government gilts last year did not throw a lifeline, despite the purported need at the time for market makers to have a 10 year gilts contract to hedge their exposure. The six market makers, four of whom were founders of IFOX, simply found other ways to hedge their positions, with the establishment of an inter dealer broker proving to be an outstanding success.
Inter dealer broker Garban Butler was able to provide a service for market makers to trade with each other, a service that obviated the need for a futures contract. In addition, the repo market provided an adequate hedging mechanism for most of the market makers.
Still, many overseas investors not familiar with Irish financial markets will look at the closure of IFOX in a negative light and question the credibility of a financial services industry that cannot support even a very modest futures market. Stockbrokers, the banks and other corporates as well as the National Treasury Management Agency all have role to play to ensure that the demise of IFOX does not damage the credibility of the Irish financial services industry.
On the equity side of the business, it proved to a week of steady growth for the market, with CRH in particular enjoying a good run after its recent period of weakness. There really was little logic behind CRH's slump to 550p, irrespective of the NatWest sell recommendation, but the share may find it difficult to return to the dizzy heights of 650p.
Independent's failure to capture Westminster Press in alliance with Mirror Group Newspapers did not perturb the market, with most taking the view that Independent's ambition to be a major player in Britain should not come 6ii the back of overpaying or newspaper assets.
First National's £51 million takeover of Mortgage Corporation has, needless to say, led to renewed speculation about a conversion to plc. Despite Mr John Smyth's protestations about having enough on his plate, most in the market believe a flotation is inevitable.
The good response to the Tullow rights issue a 90 per cent take up and the rump placed at a premium also augurs well for Ivernia's partly paid rights issue.
