The London Stock Exchange faces a year of IT challenges. How it meets these challenges will determine whether it becomes one of the world's top five trading venues or remains a peripheral player.
CEO Xavier Rolet knew the Stock Exchange had to change in the face of fierce competition from rival exchanges when he took over a year ago. He took little time to identify IT both as the problem and the possible answer. The LSE recognised that its much-hyped core trading system, Tradelect, was no longer up to the job.
The exchange made an acquisitions to gain the technology needed to be a world league trading venue. It bought platform supplier MillenniumIT in September 2009. In December, it also agreed to take over the operations of competitor Turquoise in a share deal. In 2007 it bough Minlan based Exchange Borasa Italiana.
The company has set itself ambitious goals to integrate its acquisitions in 2010. It aims to replace Tradelect with the MillenniumIT platform, move the Turquoise exchange to Millennium, and decommission trading platform Cinnober, another highly customised platform used by Turquoise.
The London Stock Exchange is also attempting to become a top European clearing firm, and is close to finalising a deal to buy Dutch clearer EMCF. Although it is not yet clear how EMCF would interact with MillenniumIT software, it will have to at some point.
LSE CIO David Lester recognises that in the highly competitive trading sector, technology is probably the most important competitive differentiator between exchanges. He says that IT is key to the exchange's plans to become one of the world's top five trading venues.
Turquoise CTO Yann L'Hullier, who built the trading venue's platform from scratch, agrees that this year is crucial for the London Stock Exchange's IT. "It will demonstrate its ability to deliver," he says.
L'Hullier is no stranger to large IT projects at major exchanges. As well as his work at Turquoise, he replaced the entire trading system at the Toronto Stock Exchange in 2001, and replaced the one used by the Boston Stock Exchange in 2005.
Brian Taylor, managing director at BTA Consulting, which operates in the investment sector, says this year will be "make or break" for the London Stock Exchange. "2010 will see the success or otherwise of the London Stock Exchange's MillenniumIT acquisition. It will be in trouble if it does not deliver."
The right technology
Rik Turner, analyst at Ovum, says to reach its aim of being a top global player it must have the right technology. He believes the LSE's strategy of acquiring new platforms by buying rival exchanges. The NYSE, Nasdaq and Deutsche Borse have used this strategy to become the top global exchanges.
"Technology is the calling card when attempting to make acquisitions, and all the top exchanges have good technology," he says.
But Turner questions whether the MillenniumIT platform has been tested enough. "In the developed world it has only been used at the American Stock Exchange and the Boston Exchange, and both of these were replaced when the organisations were acquired by the NYSE and Nasdaq respectively."
Although it was not dropped for any performance reason, it means the technology has not been tested in a global exchange environment.
A clear plan
Completing multiple projects at once could be risky, says Bob McDowall, analyst at Towergroup. "I do not think it can do these projects concurrently and I doubt it can complete them in a year."
He adds that the LSE needs to be clearer about the projects and the timetable. "A lot of questions are being asked and the company has to be clear about how and when it will do these projects."
James Milne, senior consultant at Applabs, which tests stock exchange platforms, agrees. "The exchange needs to be very clear in defining the approach it is going to take. It will have to share it with all the parties involved," he says.
The plans for this year have been put together by CEO Xavier Rolet.
Bola Rotibi, analyst at Macehiter Ward Dutton, says the fact that the CEO is behind the plans and understands the role of technology will give this year's projects more chance of success. "He has made it clear from the outset that he is aware of the value of technology. He is in a good position to recognise how the business will direct technology."
If the London Stock Exchange's ambition is to become a top five global exchange, then its technology will make or break it, and this will be the year it does it. ●