LSE and TMX seek savings and competitive edge through combined systems

Today's £4.2bn merger of the London Stock Exchange (LSE) and Canadian rival TMX will depend on a shared technology strategy to drive down operating costs and improve its competitive position.

The two bourses confirmed today that they had agreed to merge, creating a global trading powerhouse, with more than 6,700 listed companies.

“Together, we will also be uniquely positioned to offer high-performance, low-cost technology solutions to our exchange clients around the world,” said Xavier Rolet, chief executive of the London Stock Exchange Group.

Under the merger plans, the combined group expects to generate operational cost savings of £35m a year within two years.

Trading exchanges have become highly dependent on technology to deliver competitive advantage, following the rise in high frequency traders that has heightened the need for exchanges to deliver lightening fast stock and derivatives results. The merger of LSE and TMX will allow them to cut IT costs by sharing their cash and derivatives trading and clearing technology.

The two exchanges already had a derivatives trading licensing deal, which enabled LSE to use TMX’s SOLA trading platform.

That trading system, along with the LSE’s MillenniumIT look set to form the bedrock of the merged group's trading systems.

In September 2009, LSE paid £30m to acquire Sri Lankan software development house MillenniumIT to provide a highly scalable and very low latency in-house developed trading system.

The combined group will have the “right cost structure, financial strength, technological expertise and product portfolio”, Rolet added.