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Sabotage Fears as LSE Platform Crashes

The London Stock Exchange was scrambling to establish how a human error in possibly “suspicious circumstances” had knocked out one of its dealing platforms on Tuesday as the exchange conceded it would now have to delay switching over to a new trading system until next year.

The developments are a blow to the efforts by Xavier Rolet, LSE chief executive, to restore the fortunes of the exchange at a time when it is launching an unprecedented set of initiatives designed to catapault the bourse back into the front ranks of global exchanges.

The LSE is battling rival trading systems such as Chi-X Europe, and had managed to stabilise its share of trading in FTSE 100 stocks to around 62 per cent in recent months. But that has slipped to 54 per cent in the past two weeks amid teething troubles with new trading technology.

Mr Rolet has been overseeing the migration of its Turquoise trading platform, run jointly with some of the LSE’s biggest bank customers, over to a new trading system provided by MillenniumIT, a Sri Lankan company.

The LSE bought MillenniumIT last year, planning to use it to carry out a complete overhaul of the LSE’s trading technology. The first phase of that came last month when Turquoise switched over to using MillenniumIT’s trading system, which the LSE boasted was the fastest in the world at the time.

Turquoise is the LSE’s first significant foray into the trading of pan-European shares. The LSE is in the midst of switching over its main SETS order book to the MillenniumIT technology, replacing TradElect.

However Turquoise was hit on Tuesday morning with a two-hour outage – the second technical glitch to hit the LSE in five weeks.

The LSE said human error had caused the disruption, but that “preliminary investigations indicate that this human error may have occurred in suspicious circumstances”. A full internal investigation had begun and “the relevant authorities” had been informed.

“In light of this incident, coupled with necessary network upgrades to address ultra low latency and high flow inherent in the new platform, the group has regrettably been forced to postpone its Main Market LSE technology migration for SETS,” the LSE said.

It said it would work with customers “to agree a date as early and practicably as possible in 2011 to reschedule the main market migration”.

For any exchange, switching over to new trading technology carries a risk of loss of credibility – and therefore trading activity – if anything goes wrong.

Peter Cox, principal consultant at Bourse Consult, advisers on financial market infrastructure, said: “This is a very serious problem. If they were talking about delaying for a couple of weeks then you would say that’s just the luck of the draw. But they did not in my view seem to have the right level of testing for what is inevitably a risky process. Delaying until next year sounds as if they have a significant problem.”

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