10 Sep 2008, David Benyon, Operational Risk & Regulation
LONDON – Share prices rose and international markets rallied on Monday, in reaction to the US government’s rescue of stricken mortgage lenders Fannie Mae and Freddie Mac. But at the London Stock Exchange (LSE) screens froze and traders were left in the dark, while counterparts in New York, Paris, Frankfurt and Tokyo all cashed in on rallying prices. The LSE is now investigating the costly communications crash.
Orders were suspended at approximately 9.15am, just as market activity began to surge in the wake of the Fannie Mae and Freddie Mac bailout. Despite regular LSE website updates about efforts to regain “consistent connectability”, trading did not resume until 4pm – leaving only half an hour to make up for a day’s hiatus.
Bob McDowall, research director at TowerGroup, says: “This is very damaging to the LSE’s reputation and to London as a financial centre for trading equities. The LSE will almost certainly lose competitive advantage to the alternative trading systems and even other global exchanges.”
No explanation has yet been given by the LSE, although reports suggest the blackout might be linked to weekend upgrade work carried out as part of the exchange’s merger and integration with Milan-based Borsa Italiana.
On Monday, many traders said they had resorted to using the Turquoise and Chi-X exchanges to continue trading. However, these recent LSE rivals still rely on the traditional exchange as a source of reference pricing.
The glitch harks back to the troubled launch of the LSE’s new Tradelect high-speed trading platform last year. That rollout led to the exchange’s first computer crash in seven years on November 7, when the highly anticipated system ground to a halt half an hour before the close of trading. The LSE was then forced to erase its electronic price display system and extend its closing auction from 4.30pm to 6pm.
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