The world's third largest stock exchange, London Stock Exchange, suffered a knockout blow and remained knocked out almost the whole day yesterday following a computer breakdown that halted trading on Monday, that also brought down the Johannesburg Stock Exchange, which uses the LSE's trading platform.
Stock Exchange officials suspended trading when it became apparent that many brokers had lost their connection to the system. The exchange was revived at 4 pm and ran for the final half hour of the day on "auction mode" where brokers could decide prices and agree sales but not settle trades.
Before trading was stopped, the FTSE 100 had risen by more than 3 per cent in the morning after a rally across Asia diven by the news of the takeover of FreddieMac and Fannie Mae by the US government.
Analysts opine that the market stands to lose millions due to the breakdown in trading for the day.
Brokers were furious as explanations were not forthcoming for the embarrassing technical failure and LSE's apparent inability to keep the market informed. One broker was quoted as saying "We have the biggest takeover in the history of the known world ... and then we can't trade. It's terrible."
Brokers expected a large volume of trading for the day following the $200-billion bailout of Freddie Mac and Fannie Mae by the US government the previous day, highlighting the fact that the exchange may not have been able to handle the volumes.
The breakdown occurred just days after the LSE announced plans to improve services as it faces competition from several new platforms that promise low-cost, high-speed trading systems such as the Turquoise that is a consortium of nine banks including Citi and Goldman Sachs among others, Japanese investment bank Nomura Holding Inc.'s Chi-X, Nasdaq OMX's European platform and Plus Market.
To offset competition, the LSE replaced its 10-year-old Sets system with a new platform which runs on Microsoft software called TradElect. The advantage with TradElect was that it reduced the time taken to complete a trade from 140 milliseconds to 10 milliseconds.
Shares in the exchange have fallen 60 per cent this year because of competition and with this breakdown of the country's main exchange has prompted some brokers to rethink their dependence on a single system.
Yesterday's 7 hour shutdown comes after the exchange experienced similar shutdown for 8 hours in April 2000 because of a problem with London Market Information Link and the entire day closure of the exchange in October 1987 as storms battered England.
An inquiry has now been launched to find out the causes for the breakdown and to ensure that such a disaster does not happen again.
A message on the LSE website said today: "The Exchange regrets the earlier interruption to trading and is conducting further investigations.
Operations today were "as per standard trading schedule", it added.