The London Stock Exchange's decision to replace its
core trading platform is more complicated than everbecause of the fierce competition in the sector.
Will the company have to replace Tradelect with a system used by
a competitor? Will it look outside Europe for a system? Or will
itmerge with another company to gain the appropriate technology? Or
there isthe option of upgrading Tradelect.
The stock exchange
announced in June that it will replace Tradelect because it is
no longercompetitive in its current form. Tradelect, which was
introduced two years ago,was developed using Microsoft's .net
framework. It replaced the Sets electronic order book trading
service, which was developed using Cobol in 1995. The project to
design, build and implement Tradelect took four yearsand cost
£40m.
Increasing competition
Since its introduction, the trading sector has seen major
liberalisation. The pan-European
Markets in Financial Services Directive (MiFID) has led to
creation of
many more trading venues and competition for the London Stock
Exchange.
Chris Skinner, CEO at financial services think-tank
The Financial Services Club, says replacing Tradelect is a
difficult task, but one that the London Stock Exchange has to
complete.
He says it will not upgrade the existing software, claiming it
is a "complete mess" and must be replaced.
Technology options
The London Stock Exchangesaysthe initial list of18 optionshas
been whittled down,but a
decision is still weeks away. "Several options are on the table
and we are making progress," said a spokesman.
If it wants to be competitive, the logical choice would bethe
Chi-Tech platform, which is part of the same company as trading
venue Chi X, says one source."If it hasany sense it willchoose
Chi-Tech because it is the fastest and most robust."
Chi-X, can complete a trade in 0.4 milliseconds, compared
withthe London Stock Exchange's 2.7 milliseconds.
But Yann L'Huillier, CTO at
trading venue Turquoise, says no exchange will want to use the
same system as another European trading venue."It would be a
problem because your competitor would know the development you are
doing."
Skinner at the Financial Services Club does not see why the
exchange cannot use a competitive system because most systems can
be customised. "At least it wouldhave parity. Itcould then add to
it," he says.
Jan Apri, CEO at trading platform supplier Cinnober, agreesthat
competitors can use the same core platforms. "The decision not to
use the same system as a competitor is a political one,not a
technology one."
Outside Europe
Europe's trading venues use about 20 trading platforms, but
Brian Taylor, managing director ofBTA Consulting, says if using a
competitor's system is a problem, the London Stock Exchange will
have to look further afield."If it does notwant to use a platform
the same as a competitor, it could buy outside Europe." He
suggeststhe Millennium System in Sri Lanka is one such
possibility.
Taylorsays the stock exchange could also acquire or merge with
another company to gain technology.
L'Huillier agrees. "It is possible that the stock exchange could
buy a platform from a company it will do business with or merge
with."
Turquoise has announced its plan to find a buyer and has sent
notices out to potential bidders, including the London Stock
Exchange.
The London Stock Exchange is operating in a far more competitive
environment today than it was when Tradelect was introduced two
years ago. It would not have expected to have to make this decision
so quickly, but the need to do sodemonstratesthe scale of
change.