The recent past has been a hectic time for the LSE. There was the failed merger with the Frankfurt stock exchange and the protracted fight to see-off a hostile takeover by Swedish supplier OM Group.
But now the LSE is determined to draw a line under the merger mania. It has begun talking about its IT vision for the next five, even 10 years - without any mention of mergers. The blueprint includes a move to an Internet protocol (IP) network and an eagerly-awaited upgrade to its electronic trading platform. Wittmann is in a bullish mood. “Since the beginning of September, IT has been extremely active and I’ve been dusting off old projects and trying to get some new ones off the ground,” he said.
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The LSE will move to an IP-based network from its proprietary X.25 network in a bid to facilitate the distribution of information services to stock exchange members across the world. All of the LSE’s stockbroker firms will have to migrate to the new network. It is due to begin in the first quarter of next year. “We are putting in place infrastructure that will enable us to deliver more Internet-based services,” he said. “The information we hold is one of our main assets. We ultimately have to deliver products and services to the market.”
The LSE is also due to upgrade its electronic trading platform Sets next year and boasts that it could triple the exchange’s trading capacity. The systems upgrade - from Tandem K to Tandem S servers - should take about seven months to implement.
But the ability of this upgrade to Sets to grow with future demand has been contested by OM. The supplier recently claimed that the LSE’s new trading platform will need to be overhauled after it is installed because it is not scalable enough to cope with the rapidly expanding market.
The Sets upgrade will scale up with demand. The LSE still has much to do to convince its members to back its IT strategy. Some firms are still smarting over the way the LSE handled IT issues during the failed merger with the Frankfurt market.
The Association of Private Client Investment Managers and Stockbrokers (APCIMS) has just published an extensive strategy document mapping out where it believes the LSE should be going on key issues such as technology.
Mike Jones, director of Internet trading service MBA Systems and former chairman of APCIMS, welcomed the planned move to an IP-based network. “It certainly needs to move from X.25 to an IP-based network as everyone’s doing it. The open architecture of X.25 makes it easier for developers to connect to other networks and systems,” he said.
But the LSE faces bigger technology challenges, such as connecting its trading system to other markets, Jones argued. This would give brokers access to a wider variety of prices from foreign markets, such as Nasdaq or the Deutsche Borse.
Market globalisation will demand more connections between exchanges. But this will hinge on the exchanges agreeing on common standards to interface their trading systems, said Jones. Success also depends on other factors such as outsourcing arrangements. Andersen Consulting, which developed Sets, is responsible for the day-to-day running of the LSE’s IT systems, including its network and helpdesks. It is also well placed to develop systems for the LSE, although the exchange stresses that the contracts for projects are open to competition. Andersen also developed the Deutsche Borse’s trading platform Xetra, but Jones argued that the Frankfurt has a stronger record for investing in its trading platform.
“When I was looking at Xetra, I was astonished at the amount of investment in systems for new features and ease of use,” he said. Jones attributed this to the German exchange having a more hands-on approach to running its IT systems.
After a summer of merger and hostile takeover bids the LSE can start planning again. The case for common interfaces to link exchanges is a strong one and the LSE still has to persuade its members that it can modernise its IT as rapidly as its rivals. Wittmann’s stress toy should be useful in the future.