The London Stock Exchange (LSE) has been the focus of much unwanted attention over the past few months, following problems with its new trading platform, MillenniumIT, that caused irregularities appearing on traders’ screens and trading downtime. MillenniumIT was fully implemented last month.
In an industry focused on money generation, technology implementations are both the key to an exchange’s success, and could even cause its downfall.
The LSE’s recent IT troubles began in September 2010 when it acquired MillenniumIT, a Sri Lanka-based tech provider for capital markets. The motivation was to replace its current trading platform with a new one from MillenniumIT.
The low-latency system, called Millennium Exchange, can execute trades in 124 microseconds, making it one of the fastest in the world. It replaced its Windows-based TradElect platform, which was implemented and managed by Accenture. TradElect went live in June 2007.
“When the Microsoft.NET [TradElect] platform was launched it opened to a great fanfare about how fantastic it was. But when it went live it suffered outages and continuing problems,” said Paul Pickup, director at exchange technology consultancy Trading Technology.
“These issues clog up the wheels of capitalism, and when the new CEO of LSE came along in 2009, he said TradeElect was rubbish and changed the strategy.”
Pickup said the acquisition of MillenniumIT for $30m (£18.7m) was a “bargain”, but he added that the LSE took some unnecessary risks before implementing the platform.
“You have to approach a change in trading system with a great deal of caution, and with LSE being one of the largest exchanges in the world it needed longer than most,” he said.
“Timescales were very aggressive when migrating to MillenniumIT. And Millennium had never before been used in large markets and so implementing it into such a big exchange was risky.”
MillenniumIT was bought in September last year, and the new Linux system went live initially on LSE’s alternative trading platform, Turquoise, in October as a tester. It suffered major problems – the system went down and trading ceased for two hours in November last year, which LSE eventually blamed on human error.
Despite these issues, the new system was migrated to the main markets in mid-February.
“This was too fast,” said Pickup. “There was not time to iron out problems with the Turquoise system ready for the main market. Millennium had only been implemented in small markets prior to LSE, to then put it on the fourth-largest market in the world is asking for problems.”
And problems are what the LSE got. On the week of the launch there were a number of glitches, with incorrect prices shown to traders. Last week LSE had to cease trading on its UK cash equity markets for about three hours.
The question of reliability in a stock exchange is important because when a few seconds can mean millions of pounds for a trader, they will be reluctant to work on systems that create continuous problems.
“A lack of consistent reliability is a concern, because if the system is not dependable, traders will find other venues in which to do their business,” said Pickup. “Japan saw this happen on its Tokyo exchange, and continual failures led to the CIO and CEO losing their jobs,” he added.
To resolve these problems, Pickup suggested the LSE needs to take action quickly to reduce risk.
“I would review operational procedures and put more staff on shifts at the start of the day to run checks and detect any problems in the system so that any problems can be rectified before trading starts,” he said. “A period of emergency fixes is also often needed after a go-live to keep systems going. But this needs to stop soon after as changes can often introduce risk if not tested thoroughly.”
Merger with Canadian TMX group
On top of the MillenniumIT platform going live this month, LSE announced a merger with the Canadian TMX Group, which operates the Toronto Stock Exchange. This merger will see it become the world’s largest exchange for mining companies.
LSE said in a statement: “LSEG-TMX will operate on common technology platforms with the aim of facilitating efficient access across LSEG’s and TMX’s existing markets. Together with the expected increase in liquidity, improvements in technology are expected to enhance certainty of execution, lower trading costs and reduce spreads and cost of capital. LSEG and TMX will also bring together their information technology expertise to offer leading-edge, multi-asset-class technology solutions.”
Peter Redshaw, vice president at Gartner, said: “This merger is about economies of scale. In having a large global exchange the operators will drive down their costs.”
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