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London Stock Exchange: What really went wrong
- — 05 March, 2011 05:41
The London Stock Exchange has made a U-turn on the system requirements placed on data vendors such as Thomson Reuters, Interactive Data and Bloomberg, after three weeks of problems since the launch of its new trading platform.
The decision, to fundamentally change the timing and systems around closing share price data recording, was made following a heated meeting with the providers that addressed significant disparities in quoted share prices.
The move has been widely welcomed by vendors, which provide share price data from the LSE to traders, and compete on speed and quality. A number of them had expressed real opposition to the changes that the LSE pushed through as it moved to a new platform. The exchange declined to comment on the issue.
The LSE set its new Linux-based, C++ written matching engine, Millennium Exchange, live on 14 February. The problems after the launch, including a four-hour outage last week, highlight a number of technology and project management issues - as well as what appear to be efforts by some organisations to establish who has the final say in technology changes around the exchange.
A rule had come into force with the new platform that vendors had to set their systems to report closing prices at 16.30 each day - after the end of normal trading but before the daily closing auction.
This week, the LSE hosted an emergency conference call with vendors - including Thomson Reuters, Interactive Data, Morningstar and SIX Telekurs - to address the data problems. On the call, held on Tuesday, data providers said the changes were leading to serious share price problems.
The LSE's rule, insisting on taking closing prices at 16.30, has now been abandoned. The exchange has reverted to allowing price data to be recorded after the closing auction - in accordance with traditional ways of working.
The changes - and the apparent lack of system readiness among vendors - had led to what market participants described as "alarming" price disparities between the data firms. A number of vendors even displayed blank prices on top traded stocks such as the Royal Bank of Scotland and Vodafone.
Of the vendors that had changed to take prices at 16.30, some later undid the modification after finding that others had not followed the same steps, sources said.
Several providers made it clear they felt incensed about the mandated switch of closing time data to 16.30, which came with the system change.
"Clients have years and years behind them of doing it the previous way," said a source at a smaller data provider. "The exchange can't just turn the market round like that without proper consultation."
"The larger vendors too, with many different price feeds, are bound to see it as a major change," said another. "It would take teams of people to fix it."
Other providers felt the change to procedures was simple and did not bring with it much coding effort. "If you want to do business with the exchange you accept simple change requirements, even if it means dealing with your own legacy systems," said a mid-sized vendor. "We can either stamp our feet like spoiled children or just get on with it."
The stock exchange's concession on closing price timing was a major step and was useful in helping solve some of the key issues, the vendors agreed.
A spokesperson at SIX Telekurs UK said the company was pleased the LSE "will now allow vendors to publish a closing Best Bid Offer price that it is in line with previous market convention".
"We made the change early on, with very few problems," added Morningstar. Bloomberg has not yet provided comment.
Thomson Reuters and Interactive Data did not comment on the meeting. They implemented changes around a week after the launch.
Daniel Muri, head of product development at Sayula, a benchmarking firm that measures the data quality and latency from vendors, said the volume problems among vendors had emerged early on: "From the first day of trading on the new system there was a problem, and we could see on our market data monitor, iMonIT, that something was not right. Vendors were showing missing and inaccurate data of traded shares."
Since vendors began making the changes, data has been improving, he said. "We have a view right across vendors and we can see volumes are more in line after the patches were applied. But there are still issues, and we're offering our data to those companies to help them be sure of their accuracy."
Computerworld UK understands that during Tuesday's conference call the LSE came under significant pressure, from the market's largest data vendors, to remove the requirements that came in with the new system.
It remains unclear why the change to closing price data procedures was introduced with the new system. But market sources said they were not convinced that Millennium Exchange was ready to deliver effective post-auction close prices.
Vendors' lack of readiness may also indicate either their confusion over the instructions issued by the exchange, or a lack of clarity in the documentation, sources said.
But sources at some of the providers, who chose to remain anonymous, said their counterparts had "refused" to make the changes, because of the accompanying system modification required and the potential effects on clients.
Following the U-turn made by the exchange, vendors that choose to stick with the traditional format of closing prices - after the auction - will have to code their systems appropriately to take the data. Many have been applying workaround patches, which are not expected to be effective long-term solutions. Therefore vast coding exercises, particularly at the larger vendors, continue.
Another problem that has yet to be solved emerged within minutes of the LSE's new matching engine going live on 14 February. Some vendors have been displaying different in-session prices and cumulative trade volumes well before the close. Work continues in this area.
The news of differing closing prices and volume disparities has alarmed share traders and caused widespread discontent in the market. Over the last three weeks, as vendors adjusted to the system launch, Computerworld UK has been contacted by traders and IT suppliers, who have angrily complained of the challenges dealing with the new setup.
The problems are thought to relate to the way vendor systems are running - but market sources also raised concerns at the data formats being used under the new technology.
Privately, the London Stock Exchange believes the 15-month time period, given to vendors to prepare for the switch, was adequate. However, the largest vendors may have missed, misinterpreted or in some cases decided not to comply with the instructions.
Over the preparation period, dozens of detailed technical pamphlets were issued by the LSE, and multiple tests took place under heavy load.
But the LSE took a big bang approach to the actual switchover. Millennium Exchange went live after the weekend that the troubled, outgoing TradElect platform was unceremoniously switched off.
"I am astonished they did not run the systems in parallel," said a source at one of the major data vendors. "At least for a few weeks or months as necessary."
The LSE argues that it gave plenty of proper testing and preparation time, and that the vendors should have been ready. It has been working with them to resolve the issues.
Changes agreed at the emergency meeting will likely address some of the most severe closing data problems. But one independent trading expert said: "The vendors who wanted the U-turn are still likely to encounter blank post-auction prices if they stick with the old way of doing things."
In spite of the new arrangement, if data problems appear post-auction, in the long term the LSE may consider reintroducing the 16.30 data time.