The London Stock Exchange (LSE) revealed its plans to support low-latency and algorithmic trade execution at the announcement of its preliminary results for the year ending 31st March 2008 on Thursday.
Observing that “high-velocity automated trading has taken off”, Clara Furse, CEO of the LSE, detailed a number of initiatives designed to facilitate advanced trading techniques and strategies, as part of the exchange’s strategy to grow trading volumes.
High on the agenda were plans to reduce latency from six to three milliseconds for average end-to-end execution following an upgrade to the LSE’s trading system, TradElect, in September. Capacity for the system is expected to double to 10,000 continuous messages per second, along with a FIX interface planned for implementation in early 2009. The exchange also predicted latency of below one millisecond across Europe by 2009. “Multilateral trading facilities (MTFs) have created a new benchmark in Europe and this is what we plan to target next, in terms of latency,” said David Lester, LSE's chief information officer.
The LSE also announced that it would be offering hosting services from August this year. This would allow customers to have their algorithmic engines next to the core execution engine at the LSE’s data centre, effectively eliminating network latency for certain types of trading activity.
Furse outlined her thoughts on the competitive landscape facing the LSE. She believes it is important to differentiate between bluster and fact when looking at new venues. "All too often perceptions seem to be based more on the former than the latter," she said.
Responding to comments made by Simon Brickles, CEO of PLUS Markets, a UK-based exchange for mid-tier stocks, at The Financial Services Club at Lloyd’s of London on Monday, she said: “PLUS Markets has used statistics in a most creative way and as a primary market, PLUS has made little or no progress. Last year, new companies on its market raised just £4.1 million between them.” She also described PLUS’ role in price formation as “limited to the 220 PLUS-quoted securities which trade, on average, less than once a week.”
Furse recognised that Instinet’s pan-European platform, Chi-X, had succeeded in attracting liquidity but asserted that much, if not all, of Chi-X’s business is dependent on the price formation and underlying technology provided by the LSE: “It is not a coincidence that the most active liquidity provider on Chi-X has dramatically increased its activity on SETS (the LSE’s electronic order book), linking the two liquidity pools.
Ironic as it may seem, Chi-X’s relatively high volume in UK equities is in fact a compliment to TradElect.”
Both Furse and LSE chairman Chris Gibson-Smith emphasised that the recent credit crisis had underlined the value of a central exchange model that provides certainty of investment. Furse said, “While the credit crunch and associated market turmoil has created challenging market conditions in the short term, it has served to underline the importance and attractions of equity finance.
Recent rights issues are highlighting this vividly.”