A joke doing the rounds in the markets on Friday had traders describing Britain’s national bourse as the “London Stop Exchange”.
For more than four hours trading was not taking place on the London Stock Exchange, after a glitch knocked the system out. Technical issues often plague exchanges – but this one could not be waved away as a blip.
Xavier Rolet, the LSE’s ebullient chief executive, has staked much of his reputation as a savvy former Goldman Sachs banker – and that of the exchange itself – on switching the LSE’s old trading system over to one that processes trades 10 times as fast.
The prize is to attract business from ultra-fast participants, often called “high-frequency” traders. The LSE wants to take the fight to platforms, such as Chi-X Europe and BATS Europe, which have eaten away at its market share in the past four years.
On Friday, traders were left helpless following problems with the way prices were distributed to the market. Adrian Fitzpatrick, dealinghead at Aegon Asset Management UK, said: “There was a lot of sitting around this morning.”
As the LSE scrambled to get the system back up, there was more at stake than lost trading opportunities. This is the third time since October that there have been problems with the exchange’s switchover to the new technology.
Mr Rolet made a big bet in 2009 by buying a little-known Sri Lankan technology group called MillenniumIT. There is no proof Millennium’s technology is faulty, but implementation has had teething problems. Mr Rolet is under intense pressure as he pursues a merger with TMX Group, Canada’s bourse operator.
Hirander Misra, chief executive of Algo Technologies, a US-based trading technology company, said: “The LSE have had their work cut out but you’ve got to question the market’s confidence going forward.”
One lesson from previous LSE outages is that trades can be done on other platforms that have proliferated since 2007, when the European Commission allowed competitors against national exchanges.
Some brokers on Friday were able to trade on those platforms, including those run by banks and brokers such as Knight and Citadel Securities, two of the largest US brokers with operations in London.
But many investors were restricted by the failure of the opening auction, which is used to help set a “reference price” at the start of each trading day. That price is still heavily relied on by brokers and many were reluctant to use other platforms without it.
The LSE may not be so lucky next time. Matteo Cassina, president of European execution services at Citadel Securities, a US broker, said: “The more competing markets we have, the more users feel comfortable in trading away when the primary market is down.”
Additional reporting by Philip Stafford and Masa Serdarevic