Tradelect platform pays dividends

The London Stock Exchange provides a lesson in how to generate growth and drive innovation on the back of a business-focused technology strategy

The London Stock Exchange's reference to the contribution of its Tradelect platform in its trading update illustrates technology's role as a business generator as well as enabler at the company.

Clara Furse, chief executive at the exchange, told the City that the Tradelect platform had contributed to strong growth in trading volumes. "This excellent performance, together with high levels of activity in the primary markets and good progress in the information services division, ensures that we will report strong first half results," she said.

Furthermore, the completion of the London Stock Exchange's £1.63bn takeover of Milan-based exchange Borsa Italiana last week, and its planned doubling of capacity as a result, stemmed from business decisions made on the back of technological advancement.

Robin Paine, chief technology officer at the London Stock Exchange, said technology was a "front-office business" at the exchange.

"This is because IT is so close to the revenue generation and diversification," he said. "We regularly reference technology as being important to our growth."

The company completed the implementation of Tradelect in July, ending a £40m, four-year IT programme. To get boardroom backing for the investment, the IT department demonstrated a combination of cost-cutting, revenue-generating and future-proofing advantages to the directors.

This was not straightforward and meant a stringent business case being put forward, said Paine. "[The project] needed a lot of board approval and we had to put that request for funding in a business context and paint the picture for the board of how we saw the market developing, and put it in that context," he said. "In my experience in financial services IT, if you can present a robust enough business case, you will get what you need."

Tradelect was just one element of the four-year technology programme, with other components including a surveillance system to monitor real-time price movements and a market data system.

"The trading system is really important, but there are other components in the value chain that people buy from us that are equally important," said Paine.

"There is a strong business case that shows the payback for the investment taking several forms, such as future software agility, where we can reuse technology. Another part of the business case is to reduce our operating costs by 20%, which is something we will do over the next 12 months."

Software agility

Tradelect enabled the exchange to increase its record for the highest value of transactions processed in one day by more than £4bn. But it was not just the increased revenue opportunity from higher volumes that made the Tradelect project attractive. Software agility, which enables the reuse of technology offered value for money, said Paine.

Software code used by Tradelect, which in essence is a complex piece of middleware, is also used by other product platforms.

Paine said lots of the systems use the same underlying technology. "Our ticker plant, which sends out price updates, uses exactly the same technology as our trading system, and our surveillance system also uses the same technology."

The software is written to be agile, so the IT department can change its functionality quickly and cheaply.

There are also opportunities for the company to trade in different markets, such as derivatives and bonds, using the same technology. "Tradelect does not support these today, but when we wrote the software we had this agile approach in mind, so it can support more asset classes," said Paine.

IT underpins everything

Paine said there were many factors that differentiate stock exchange services, such as pricing, availability and performance, but technology can assist with all of these.

If exchanges have an effective IT infrastructure and department, they can be aggressive in pricing, and the technology can impact performance and availability directly, he said.

Technology was the London Stock Exchange's way of moving forward in a changing market, said Paine. "In the context of the competitive landscape increasing, Mifid, increased volumes, algorithmic trading and other product initiatives, we decided Tradelect was the right thing to do, and we believe it puts us in a very good position to compete today and in the future," he said.

Technology's business-critical role is such that Tradelect runs simultaneously in three locations. The exchange said in its annual report, "Key services depend on technology which is secure, stable and performs to high levels of availability and throughput. The failure of these systems could adversely impact revenue and customer goodwill. The group maintains alternative computer facilities to reduce the risk of disruptions." It said there had been no outages in the past seven years.

IT challenge

As the company's IT leader, Paine recognises the value of aligning IT with business goals, the need to drive innovation to move the business forward, and the demands for future-proofing.

"I need to make sure the IT strategy is absolutely aligned with the corporate vision and be able to stimulate innovation so that IT individuals are able to be creative with ways of growing the business within the context of the vision," said Paine.

The business is highly demanding and there is no room for sitting back and watching things work, he said. "Volumes have increased by 100% in the past 12 months, and we need to be able to scale ahead of that demand."

Read more on Business applications