UPDATE - British, German Stock Exchanges Face Merger Technical Snags

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

[Fair use for education and research purpose only]

Tuesday May 9, 5:22 pm Eastern Time Forbes.com

Title: British, German Stock Exchanges Face Merger Snags

By Lisa DiCarlo

You wouldn't want to be the one responsible for merging the information technology infrastructures of organizations as massive and complex as stock exchanges.

The issue came to the fore last week when the London Stock Exchange (LSE) and Frankfurt Deutsche Boerse said they would merge this fall. The pair will also partner with Nasdaq to form an exchange, to be based in Frankfurt, for high-growth European stocks.

The merger throws a glaring light on LSE's technical problems, which have damaged its reputation of late and threatens to complicate the integration. In early April, its electronic trading system was shut down for an entire day because of a software problem. To make matters worse, it happened on the last day of the tax year.

LSE's technical problems are the most likely reason that the merged exchange will be based on Frankfurt's Xetra technology, which executives claim has never failed.

LSE's problems go back several years. Two years ago, it and Deutsche Borse tried to establish a common European trading platform but they failed to deliver. LSE's outgoing Chief Executive Gavin Casey has been criticized in European newspapers for failing to implement a stable electronic trading system--two multimillion dollar attempts at electronic trading failed--and for not raising the exchange's profile in the face of more intense competition.

LSE is not the only exchange to suffer embarrassing, expensive problems. The Toronto Stock Exchange had its service interrupted for two days in February and had to cancel after-hours trading altogether on those days.

In September 1999, data feed problems forced TSE to shut down its equity and derivatives trading for almost an hour. And in April 1999 TSE halted trading for two hours when it had technical communications problems between itself and members.

Even Nasdaq and the New York Stock Exchange--the latter handles about 3,500 transactions per second but has had remarkably few problems--are not immune.

NYSE missed the opening bell on Dec. 18, 1995 because of a computer problem, delaying trading for about one hour.

``It was excruciating,'' said Charles McQuade, president and CEO of Securities Industry Automation (SIAC), which develops and services the technology infrastructure for NYSE and the American Stock Exchange. He made the comments at a Merrill Lynch technology conference last week.

In November, the electronic systems running Nasdaq crashed for 17 minutes, in the last half hour of trading. There's no way to know how many shares might have been traded electronically, but 100 million shares were traded by phone during the 17-minute outage.

Banking systems, too, are very complex and take years to integrate. A Wells Fargo executive said last month that the company still has not converted its California customers--its biggest base--to a new system resulting from its 1998 merger with Norwest. And Citicorp, which merged with Traveler's Group in 1998, has had difficulty sharing customer information even across its own business lines.

Technology experts say major problems aren't unusual in large-scale mergers--partly because executives often don't pay enough heed to the challenges of technology integration--but they become even more acute in the financial sector, given the billions at stake.

``There are three big barriers to a [smooth, successful integration] of IT infrastructures:...time, cost and risk,'' says Allen Brown, president and CEO of The Open Group, an organization that develops, promotes and--insofar as it can--maintains compliance of technology standards for banking and securities industries, among other industries.

The completely revamped exchange, to be called iX, is expected to go live in the second half of next year. That time frame may be overly ambitious.

Go to www.forbes.com to see all of our latest stories.



-- (Dee360Degree@aol.com), May 09, 2000


They had better re-think this whole thing. This promises to be a major glitch.

-- Uncle Fred (dogboy45@bigfoot.com), May 10, 2000.

Moderation questions? read the FAQ