Will London Stock Exchange scrap Tradelect?

Whether the London Stock Exchange decides to scrap its core trading platform or upgrade it will be a lesson to all project teams when developing core...

Whether the London Stock Exchange decides to scrap its core trading platform or upgrade it will be a lesson to all project teams when developing core business software to meet current and future needs.

The stock exchange last week said that it is considering whether to upgrade or replace Tradelect to retain competitiveness.

Its decision will be a judgement on a project which took four years of planning. It has been operational since June 2007 and has been successful in taking the stock exchange to the next generation of technology. But it may not be enough to keep it competitive.

A stock exchange spokesman says it is now considering whether to replace Tradelect or upgrade it to keep pace with changes in the industry.

"The question is whether we can keep competing with Tradelect," he says. "It did the job of keeping us competitive and giving us next-generation technology, but it is now six years since we started on the project."

If the system is replaced it will be embarrassing and suggest that the company did not plan in the right way. However, if can be upgraded to keep pace with a changing sector it will justify the £40m project that had four years planning.

During Tradelect's design the IT department planned for substantial software reuse when developing the platform, which would enable systems to be adapted rapidly to meet changing business requirements. The exchange has already benefitted from this adaptability of Tradelect by integrating all the business of Milan-based stock exchange Borsa Italiana, which it acquired for £1.63bn in June 2007.

But is the fierce competition in the sector and rapid technology development making the London Stock Exchange think twice?

As recently as June the exchange's CIO David Lester talked up its Tradelect plans. He said the migration of trades from Italy was almost complete and that "the focus for technology is moving to the next phase".

He also said Tradelect can now complete a trade in 3.7 milliseconds, and that the IT team will continue to reduce this.

Chris Skinner, CEO at financial services think-tank the Financial Services Club, says if Tradelect is dropped it will be embarrassing for the exchange. "I would be surprised if it ditched Tradelect because it has spent millions of pounds and a lot of time on it. It had a long term plan to keep developing it and adding to it."

When Tradelect was introduced to the live environment two-years ago it was on the eve of the introduction of pan-European legislation set to liberalise the trading sector. The Markets in Financial Instruments Directive (Mifid) allowed more companies to become trading venues.

PJ Giammarino, CEO at think-tank JWG-IT, says the Tradelect project was a great success because the trading sector was unaffected by its introduction, which is vital because the trading sector operates by the millisecond therefore any downtime is costly.

But he says the fragmentation caused by Mifid with the introduction of new trading venues was bound to put massive pressure on primary exchanges like the London Stock Exchange. Previously they had little or no competition.

But Giammarino says the exchange would have planned for this. If it does scrap Tradelect, "It might indicate there is something fundamentally wrong with the system's architecture."

He says there has been "phenomenal growth" in the number of messages sent and trades completed since Mifid. "It knew Mifid was coming but it might have got its volume planning wrong."

Giammarino says the problem experienced by the exchange in September last year when Tradelect could not complete trades for about eight hours, due to a technical glitch, put Tradelect in question. "Clearly this outage really shook the market's confidence in the viability of the single primary market."

Bola Rotibi, principal analyst at Macehiter Ward Dutton, says two years is not a long time for core business software such as Tradelect to be in operation. She says software should have an architecture that has changes to the business environment at the core of its design.

"Businesses sometimes decide to replace software but this should be done after they have made all the considerations in the first place and because it is the right thing to do at the time, and not something you have had to do because you have the wrong architecture in place."

Whether the London Stock Exchange decides to replace or upgrade Tradelect will be based on its business objectives. It will serve as a lesson to software development projects either way.

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