Multi-million-pound IT conversion costs are threatening to derail the planned merger of the London and Frankfurt stock exchanges.
Stockbroking firms could each face up to £500,000 in IT fees if the merger goes ahead. The proposed merger between the two exchanges - outlined last week - will create iX, Europe's largest stock exchange.
London stockbrokers will have to scrap their existing electronic trading system, Sets, and migrate to the German electronic trading system, Xetra - used by the Deutsche B”rse market - by the end of next year, according to merger plans.
The London Stock Exchange (LSE) is offering £30,000 to each existing customer (of the trading service) to cover migration costs over two years. But the total conversion costs for the larger member firms of the LSE will come to at least £500,000 each, according to industry consultants.
London stockbrokers spent an estimated £1bn in 1996 to implement the Sets system.
Both Sets and Xetra systems have been developed by Andersen Consulting, which has refused to comment on the two systems.
But with members of the two markets due to vote on the proposed merger in September, the merger could still fail because of IT problems.
Earlier this year the Association of Private Client Investment Managers & Stockbrokers expressed concern over the IT conversion costs for LSE users in switching trading systems under the merger (Computer Weekly, 18 May).
The £30,000 compensation package will include software testing facilities, technical information and support. It will also cover hardware and network installation services and remote systems management systems although the final details have yet to be finalised.
But the LSE offer has failed to assuage the fears of the association. It has questioned whether the package will be enough to cover the charges of employing IT consultants and has demanded more guidance on the mechanics of migrating to Xetra.
For the merger to go ahead, 75% of members of each exchange have to vote for the union. About a third of LSE members are also in the association and they hold the balance of power.
Angela Knight, chief executive of the association, said, "The money on offer represents only about a week's work for a small team of systems engineers. IT concerns add to other concerns and we will need answers before the vote on 14 September."
Smaller member firms with small or outsourced IT departments could struggle with the IT migration involved in the merger, Knight said.
The conversion costs for larger stock exchange members will be at least £500,000, said Robert Morgan, chief executive of outsourcing consultancy Morgan Chambers.