LSE sees growth in automatic trading

Accounts for more than 40 per cent of all trades on the Exchange

More than 40 per cent of all trades conducted on the London Stock Exchange (LSE) are now based on automated, algorithmic trading, compared with virtually none just five years ago.

Algorithmic trading relies on advanced computer-based quantitative models, rather than purely human instruction.

The growth follows the complete renewal of the LSE’s core technology platforms, at a cost of some £150m over five years, to increase trading capacity six-fold and accelerate information transmission (Computing, 10 November).

Guy Whittle, head of sales at the LSE, says there has been a definite move towards automated trading since 2001.

‘We estimate that far more than 40 per cent of executions on the LSE are based on this. And the number of trades are growing rapidly,’ he said.

Algorithmic trading places a number of technological demands on the Stock Exchange, including high-performance automated markets and order books, and a depth of historic data.

‘It requires fast delivery and enhanced performance, so the very fastest exchanges have an advantage,’ said Whittle.

As the Exchange has added new features to its platform, so banks and other traders have responded with ever-more advanced electronic trading technologies.
In September, the LSE finished a major part of its four-year technology programme and introduced an information delivery system called Infolect (Computing, 28 October).

The system broadcasts more than 10 million messages every day to over 97,000 terminals in more than 100 countries, detailing information such as the last trade, the current best price of the stock, and breaking regulatory news.

Speaking at last week’s Finexpo conference in London, Wendy Morgan, head of real-time data at the LSE, said the move to Infolect has dramatically cut the time taken to transmit market information.

‘The change to Infolect has meant a shift from 20 milliseconds to just two,’ she said.

Speed is a critical variable: Morgan says some firms even want to host their electronic trading boxes inside the LSE’s data centre, to eliminate the time taken for data to transmit from their network to the Exchange’s systems.
Lloyds of London

Lloyds of London last week shut down Kinnect, a £70m electronic trading platform launched in 2001, after failing to attract enough brokers and underwriters.

The system was supposed to provide a central electronic hub for broking companies to share data, rather than relying on paper files and folders.