The London Stock Exchange has outlined its ambitions to become a supplier of IT systems following its MillenniumIT acquisition.
The exchange acquired Sri Lanka-based MillenniumIT for £18m last year with a plan to use the Sri Lankan company's technology to replace its failing Tradelect core trading platform.
But the stock exchange has made it clear that the IT unit will continue to sell to other parties. "Nothing has changed, but we now have the London Stock exchange's brand and balance sheet," says Tony Weeresinghe, who founded MillenniumIT.
First and foremost the London Stock Exchange wants MillenniumIT to improve the performance of its own trading systems, which is vital in today's trading environment. Trading systems are possibly the biggest differentiator for trading venues. Speed, scalability and high availability are as a result essential.
But why should other firms buy from MillenniumIT?
Rik Turner, analyst at Ovum, says the market for trading systems is getting bigger. "There are around 200 exchanges and apart from the top five to seven they all buy software rather than develop it," and there are hundreds of financial regulators who need systems to monitor activity.
"There are also new players (MTFs) emerging in the major markets."
"Before it was acquired by the London Stock Exchange [MillenniumIT] only had two reference sites in the developed world. These were the American Exchange (AMEX) and the Boston Exchange. But both these companies were acquired and replaced their systems."
MillenniumIT develops trading platforms, smart order routers, surveillance, and clearing systems. It recently sold a trading surveillance system to the Egyptian Exchange. It also supplies systems to organisations such as Nairobi Stock Exchange, the London Metals Exchange, Colombo Stock Exchange and Dar es Salaam stock exchange.
Any company in the trading sector that buys the MillenniumIT core trading platform will get the same technology used by the London Stock Exchange.
However, customers will then differentiate through the infrastructure that the system sits on. For instance the London Stock Exchange is putting in place technology to make the system faster. It said it should be able to complete the round-trip of a trade in less than a millisecond when it is up and running in September.
Weeresinghe, says its acquisition by the London Stock Exchange was not just to give it a new trading platform but to build a services business.
He says the company will carry on doing what it has always done, but now has the backing of a strong balance sheet and brand behind it. With the financial clout of the London Stock Exchange MillenniumIT can reach a higher level, he says. "The only issue we had before for winning deals was the balance sheet."
He says the big stock exchanges would not always buy from MillenniumIT, despite its good technology, because it did not have a strong balance sheet, which was essential because increasingly MillenniumIT's main competitors were stock exchanges selling on their technology.
The name game
"The goal-posts have moved and our competition is the stock exchanges. It was difficult because trading firms buy their systems for the relationship and the name."
Weeresinghe is confident that the exchange will have the fastest trading system, in terms of the complete journey of a trade, in the industry. The MillenniumIT development techniques are key to this, he says.
To ensure that it is leading-edge the company breaks its system every year and creates a new one. It also uses a process it calls 'BID' (Business Innovation-Dynamically) to make the systems easier to change to meet a business requirement.
This splits the development into three parts. The technology development in the form of hardware and operating systems, the application layer such as trading platforms, ERP and clearing systems and business controls sit on top.
Weeresinghe says it is built in a way that means if the business rules are changed the other layers automatically change a development technique that will continue to be used. MillenniumIT has about 200 developers in Sri Lanka.
With the London Stock Exchange behind as its owner it now has a bigger research and development budget.