27 November 2009 News

 

LSE outage fuels rivals' calls for market changes

For the second time in a month, the London Stock Exchange has been forced to cease trading as the result of an IT systems failure, fuelling calls from its rivals for an overhaul in the way that shutdowns are handled.

On Thursday 26 November the LSE took the decision to address problems with client connectivity by closing its normal order-based trading and moving to an auction-based model. In a statement, the exchange said: "What started as limited client connectivity issues spread more widely affecting numerous client connections to UK securities. To ensure an orderly market, the Exchange took the decision to place the London market into an auction at 1033, which had the effect of halting trading but allowed clients to continue to interact with orders on the system. Having identified the source of the problem and gained confidence in the remedial steps needed to restore market connectivity, the Exchange initiated an auction call at 13:30, with continuous trading resuming across the market from 1400."

Rival operators said that while system outages were inevitable, the switch from one trading model to another was a hangover from the days when the LSE was the only market. Since the Markets in Financial Services Directive opened competition in the European exchange market, it was no longer appropriate as it has knock-on effects on them.

In a statement, Chi-X Europe said that while "systems are not infallible ... the outage emphasised a number of issues which need to be addressed by the wider market".

It called "for any venue which is disrupted to halt trading promptly and restart only when all technical problems have been completely resolved".

Chi-X said that the LSE putting its market into an auction phase resulted in many trading firms' systems acting as if it is a normal market event, such as the closing auction, which triggered the exclusion of routing to other trading venues, such as Chi-X Europe.

"Given that recently the LSE has consistently represented less than 60% of all trading in FTSE 100 stocks, the auction status hampered investors' ability to trade by not enabling participants to seek a reference price on another venue," it said.

t pointed out that on 9 November the LSE suffered a partial systems failure affecting a number of its securities. On that occasion trading was halted and "consequently many member firms were able to switch trading to other venues trading UK stocks".

Charlotte Crosswell, president of Nasdaq OMX Europe said that the event showed "the urgent need to move European securities trading into a fully competitive environment. A uniform standard for market data would allow consolidation on a European level. This would enable trading to continue even if one market fails to operate, for the benefit of investors and other market participants. We are supportive of the European Commission further investigating this issue in the upcoming review of MiFID."

Xavier Rolet, chief executive of the LSE, said: "We regret the inconvenience that today's disruption to trading has caused for our clients. Having resolved the immediate issue, we are working hard to ensure this doesn't happen again ahead of switching to MillenniumIT's trading platform next year."