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LSE Looking to the Future for TradElect

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Following the tech blogs as we do, it’s been interesting to follow the smoke concerning the London Stock Exchange and the future of its TradElect system. Now it seems there’s some fire there, with the LSE acknowledging that it’s looking at the future of the platform, and how to keep the exchange in the low latency arms race that it competes in against traditional foes NYSE and Nasdaq, and upstarts like Bats and Chi-X.

TradElect – the LSE’s core matching system – was introduced by the LSE as recently as 2007, though it’s based on a design that kicked off around 2003. The cost of the system – developed by Accenture – has been put by some at around £40 million, and its performance is such that trades complete in 3.7 milliseconds for securities from its traditional UK markets as well as those from the LSE’s acquisition of Borsa Italiana. That’s not exactly sluggish, given the term “low latency” wasn’t really in common use when the design was hatched.

Some geeky bloggers have suggested that the system’s Microsoft Server 2003 and SQL Server 2000 operating stack, which runs on Intel-based HP ProLiant servers, represents a fundamental design flaw. Highlighting a failure of the system in September 2008 (which the exchange said was caused by a software bug), they suggest that a Linux-based system would be better suited for mission-critical applications and for minimising latency.

Linux is indeed used by the NYSE and Chicago Mercantile Exchange for its core systems. On the other hand, for the LSE, it’s likely that significant latency reduction can be achieved by upgrading the existing core technology to Microsoft’s latest HPC and database software, and upgrading the hardware to systems running Intel’s latest Nehalem chips. That’s got to be easier than a total system redux, even if it’s a stop-gap measure.

Whether the LSE upgrades or replaces TradElect, it will likely call upon internal resources to lead the development, after ending its outsourcing deal with Accenture (which will cease to provide services in March 2010) and bringing staff back in house. It also picked up IT expertise from Borsa Italiana, especially in areas such as fixed income and derivatives trading, clearing and settlement, and web-based user interfaces.

The LSE’s technology group is now around 300 strong, and the current management regime is apparently keen on keeping core expertise internally, while working with specialist external vendors as needed. For example, in developing its Baikal dark pool, the LSE turned to Fidessa for order management and smart order routing technology and QuantHouse for market data.

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