Gremlins strike again at LSE; Chi-X rails at suspension, calls for total shutdown

The London Stock Exchange is once again grappling with technical problems on a day when its shares have taken a hammering on fears that Borse Dubai may be forced to dump its 20% stake in the UK market.

The LSE was the biggest faller in the FTSE 100 as investors scrambled for the exit following warnings from Dubai that the country was struggling to make repayments on billions of dollars of debt. This has led to speculation that the Borse Dubai may be forced to jettison its 20% holding in the LSE, picked up during the complex negotiations over the Nasdaq OMX merger in 2007.

Shares in the London bourse fell by 36.5 pence to 778 pence, escalating a decline that began on Wednesday when the exchange operator reported a fall in profits amid strong competition in its cash equities business.

To compound its problems, trading on the Exchange was suspended at 10.33am because of technical hitches, with all orders put into an auction.

In a statement posted on its Website, the LSE says: "All quote driven securities should be considered indicative at this time. The Exchange continues to investigate the root cause and will publish an update once further information is available."

The latest stoppage comes just weeks after the LSE was forced to suspend trading in about 300 stocks because of a server malfunction.

Update The LSE has updated the market on the problems and says trading will resume at 2pm: "For order-driven securities, an auction call period will commence at 13:30, with uncrossing scheduled for 14:00. For quote-driven securities market-maker prices will be considered firm as of 14:00.

In a later statement, the LSE reported that what started as limited client connectivity issues spread more widely affecting numerous client connections to UK securities.

Commenting on the disruption, Xavier Rolet, CEO of the London Stock Exchange, said: "We regret the inconvenience that today's disruption to trading has caused for our clients. Having resolved the immediate issue, we are working hard to ensure this doesn't happen again ahead of switching to MillenniumIT's trading platform next year."

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Comments: (2)

Paul Penrose - Finextra - London 26 November, 2009, 14:36

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This just in: Chi-X's take on the latest outage - they're not impressed.

"Outages at the market of listing are unfortunate and we understand why they occur as systems are not infallible. Today's outage at the London Stock Exchange has however emphasised a number of issues which need to be addressed by the wider market.

"Following a technical fault, the LSE elected to put its market into ‘auction' status. Chi-X Europe does not believe that this is in the best interests of the overall market and investment community and calls instead for any venue which is disrupted to halt trading promptly and restart only when all technical problems have been completely resolved.

"The LSE putting its market into an auction phase resulted in many trading firms' systems acting as if it is a normal market event, such as the closing auction. This triggered the exclusion of routing to other trading venues, such as Chi-X Europe. Given that recently the LSE has consistently represented less than 60% of all trading in FTSE 100 stocks, the auction status hampered investors' ability to trade by not enabling participants to seek a reference price on another venue. On 9 November 2009, the LSE suffered a partial systems failure affecting a number of its securities. On this occasion trading was halted and consequently many member firms were able to switch trading to other venues trading UK stocks.

"The FSA has overall responsibility for the supervision of trading venues and market participants in the UK and an objective of ensuring market confidence. It should act to ensure that individual venues act promptly in a way that is in the interest of the overall market and allows the continuation of trading and an orderly market.

"We also urge FTSE International and other index providers to include stock trades from significant MTFs in their index calculations to ensure that derived products and arbitrage strategies based on underlying indices - such as FTSE 100 - also continue to function effectively based on the indices continuing to update when the market of listing is unavailable.

"The introduction of alternative venues under MiFID was designed to improve competition and reduce concentration risk. These objectives are not achievable while the markets of listing are able to use technical constructs to prevent normal market activity continuing.

"We call for the LSE and any other market of listing to close their market outright when outages occur in order to allow market participants to continue trading."

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Gary Wright 26 November, 2009, 16:26

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The LSE systems down time is very unfortunate and the reasons must be found and made public as soon as possible to retain confidence in the LSE. Its a little rich any MTF taking the high ground when the next system failure could be theirs. Systems do fail from time to time. The issue for the market and the regulator is to have an agreed process and responce when this occurs to minimise investor dissruption.

The impact on the LSE of this problem is potentially a disaster but it might push ahead the rumours concerning a Turquiose deal?