The London Stock Exchange's decision to buy the MillenniumIT
trading platform and the software company that developed it gives
the exchange control of its own destiny, says CIO David
Lester.
As revealed exclusively by Computer Weekly this month, the
London Stock Exchange chose to buy
Sri Lankan IT firm MillenniumIT in an £18m deal, to replace its
home-grown Tradelect platform.
By choosing to buy a
supplier from outside Europe the London Stock Exchange is able
to take control of the platform's development and avoids sharing a
system used by a competitor.
Lester says the company wants to be a top-five global exchange
by market capitalisation. And in the highly competitive trading
sector, technology is probably the most important competitive
differentiator between exchanges.
The stock exchange's current platform, Tradelect, relies on
suppliers such as Microsoft because of the .net technology it was
built on, and Accenture for some development, giving the London
Stock Exchange less control of the platform's development.
"It is essential that we control our software development
strategy, therefore we must own it," says Lester. "We cannot move
forward with a model of relying on suppliers because we need to
invest in research and development."
The stock exchange announced in June that it was replacing
Tradelect because it was no longer competitive.
New competitors
New competitors, such as Chi-X and Turquoise, and other
multilateral trading facilities (MTFs) emerged following the
liberalisation of the trading sector. Together with existing
competitors, they increased the performance and speed of their
trading systems, putting the London Stock Exchange under
pressure.
Trading speed is increasingly important to process high volumes
of automated computerised trading, known as algorithmic trading.
MillenniumIT is significantly faster than Tradelect. The supplier
says its trading platform can complete a trade in 130 microseconds
and expects this to fall to 40 microseconds over time, compared
with Tradelect's 3.7 milliseconds per trade.
MillenniumIT also brings its own surveillance, smart order
routing and information dissemination systems to the London Stock
Exchange, which will also acquire the services of 300 software
developers in Sri Lanka.
Good value
Yann L'Huillier, CTO at MTF Turquoise, says picking up
MillenniumIT for £18m "represents a coup" for the London Stock
Exchange. The deal looks good value considering Tradelect cost £40m
and took four years to complete.
"It will get a company with recurring revenues in Sri Lanka and
it will own the trading technology," he says. "I am shocked at the
low price."
The challenge for a company the size of the London Stock
Exchange will be to integrate MillenniumIT into its operations. It
aims to complete the integration work by the end of 2010.
But the stock exchange will have to be more nimble than in the
past and start thinking like the smaller MTFs if it is to meet this
deadline, says one City insider. The MTFs are agile enough to
quickly put together highly competitive technology infrastructures.
"Decisions take longer in a big firm but it needs to act fast to
integrate the new system," he says.
Faster development
But Lester says the London Stock Exchange, as a large trading
organisation, does not want to become like MTFs, which operate on a
small scale with a handful software developers.
"We want to be a bit different," he says, "We do want to develop
software faster, and the software we have acquired is lighter and
quicker to implement."
PJ Di Giammarino, CEO at financial services think-tank JWG-IT,
believes it will be a massive challenge to integrate the new
system.
"It will be a big project to transfer everything to the new
system. The challenge is getting from a working platform to a
better working platform without breaking it in the process," he
says.
The London Stock Exchange, like any company in the trading
sector, recognises that it is only as good as its technology. Its
decision to buy an IT company is logical and the price appears
reasonable. But the
dismantling of Tradelect will be painful.