November 25, 2009

London Stock Exchange takes £20m hit on almost redundant TradElect platform

Messaging drops below 2 milliseconds, but five times slower than Chi-X

By Leo King, www.computerworlduk.com

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The London Stock Exchange booked £20.4 million costs over six months on TradElect, its electronic trading platform that will be scrapped in only 12 months' time.

The six months’ booked costs, from the drive to speed up the platform and accelerate depreciation on the group's accounts, exceeds the amount the LSE initially spent to replace the platform by buying open source trading software house MillenniumIT.

The often troubled TradElect system remains five times slower than rivals' reported speeds. It was upgraded in 2008 by Accenture at a cost of £40 million, is based around Microsoft .Net architecture and runs on HP ProLiant servers with Cisco networking technology.

It is due to be replaced at the end of next year by an open source based platform built by MillenniumIT, which the LSE acquired in September for £18 million.

When the LSE acquired MillenniumIT, it said it would spend £30 million on TradElect in the period to the end of 2010, when it will have been fully replaced by the new platform. The costs will focus mainly on speeding up the platform, which has been far outdone on messaging speed by newer rivals such as Chi-X, which offers messaging at a reported 0.4 milliseconds, five times faster than the latest upgrades made TradElect.

Today the LSE told investors: “Upgrades to the TradElect platform continued, with reductions in latency to sub 2 milliseconds and new functionality, including hidden orders, to further enhance the attractiveness and competitiveness of the system.”

The new MillenniumIT system would give the LSE “a high performance, lower cost and highly scalable trading platform”, which was “significantly faster and more competitive”, the group said.

The system is aimed at saving the LSE over £10 million a year from 2012. It will also bring in-house the LSE’s software development, provide “dedicated research and development support”, and offer new revenue streams by selling technology to other financial markets.

Profits at the stock exchange tumbled for the six months by 37 percent to £79 million. The exchange reiterated that it hopes an ongoing cost cutting exercise and management restructure will save it over £11 million a year.

“Securing a low cost, flexible and high performance trading technology is key to being able to fully compete,” the LSE said.

Xavier Rolet, chief executive at the LSE, said: "The group is taking a number of actions to diversify, strengthen and grow the business. The acquisition of MillenniumIT is a strategically important first step."

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