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City emergency prompted algorithmic shutdown

11 July 2005  |  7969 views  |  0 London4

The London Stock Exchange ordered all market participants to switch off their algorithmic trading systems in an effort to relieve downward pressure on pricing following Thursday's bomb attacks in central London.

The number of equity trades on the LSE reached record levels on Thursday following the bombings, prompting the exchange to contain the situation by declaring a "fast market", in which market makers are relieved of the obligation to offer firm two-way prices on stocks traded on the electronic order book.

As a secondary precaution, the Exchange also instructed all participants to switch off automated trading applications, which are programmed to buy and sell stocks in response to pre-determined price triggers. Program trading by large quants was partially blamed for exacerbating the Black Monday market meltdown in October 1987, when world stockmarkets recorded their largest one-day decline in history.

The Exchange has never ordered the systems to be shut down before.

Although the City's infrastructure was damaged in the explosions, the financial market network remained open and operational. LCH.Clearnet evacuated its offices from Aldgate and matches were halted before resuming at a back-up site and the LSE continued trading throughout the day. But the London Metal Exchange, which also operates in Aldgate, was forced to halt dealing in its trading pits which fell within a police exclusion zone. But trading did continue on the LME's Select electronic dealing platform.

The functioning of London's financial markets after Thursday's bombing is to be investigated by the UK's tripartite financial authorities - HM Treasury, The Bank of England and Financial Services Authority.

With fixed line and mobile phone networks buckling under capacity pressures in the immediate aftermath of the attacks, the tripartite committee maintained open lines of communications with market institutions via a secure section of the Financial Sector Continuity Web site. The site was set up in the aftermath of the World Trade Centre attacks to enable regulators to coordinate and communicate with financial market participants in the event of a major operational disruption.

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