A surge in high-speed electronic trading has driven soaring revenues and profits at the London Stock Exchange, its annual results for the year to 31 March have revealed.
The LSE saw revenues leap 20% to £349.6m, while operating profits shot up 55% to £185.6m, with particularly strong growth in trading on the LSE’s electronic order book, SETS, pushing revenue in the broker services division up 31% to £163.8m.
LSE chief executive Clara Furse said: “The exchange has again delivered an outstanding performance reflecting a year of strong growth in each of our business divisions. Investment in new technology, market services, and international business development is creating value for both customers and shareholders.”
The exchange attributed the rocketing SETS trading figures to a structural shift in equities trading, facilitated by investment in new technology both by the LSE and its customers.
In a statement posted with the results, the LSE said traders were making strategic changes based on the new technology. “We are seeing a permanent shift in the nature of order flow as new, higher velocity electronic (algorithmic/black box) trading strategies are increasingly deployed by hedge funds, intermediaries and specialist technical trading firms.”
The total number of SETS deals increased 57%, while the total value traded rose 37% to £1,635bn – a daily average of £6.5bn.
The LSE said it was “on target” to launch its new TradElect trading platform in June – the final part of its four-year technology roadmap programme aimed at moving its core systems to new, very high-speed, flexible technology.
The TradElect platform reduces end to end trading latency from 140 milliseconds to around 10 milliseconds, and is expected to make SETS one of the fastest stock exchange trading execution engines worldwide – a development that the LSE hopes will further boost high-velocity trading.
TradElect - which was successfully launched for the Johannesburg Securities Exchange in April - and other technology developments absorbed the bulk of the exchange’s £23.5m capital spend for the year.
The LSE also reported strong performance in its information services division, with a 13% increase in revenue to £105.9m, driven by growth in the number of terminals taking the its real-time market data to a new record level. The gains follow the introduction of a new real-time market data dissemination system, Infolect, in September 2005. In March, the exchange extended the distribution of its real-time data through a tie-up with IT infrastructure services firm Savvis.
Proquote, the exchange’s financial market software and data provider, also saw revenues increase by almost 50%.
The LSE has also cut administrative expenses by £7m, with savings made through integration of business processes and IT and other business efficiencies.