Tag Archives: stock exchange

Blackout at the London Stock Exchange

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In a time when communication via the World Wide Web is paramount, we are all aware of the frustration when our internet connections fail. Often the result is having to wait to be able to check our email. Today we saw what happens in the instance of mass connection failure on a far larger scale: ‘Trading on the London Stock Exchange was halted this morning for the longest period in over eight years because of a connectivity issue’, says the Timesonline.co.uk.

Before 9am, Europe’s oldest independent exchange suspended all the connections, leaving the traders without prices and completely unable to buy or sell shares. Technicians failed to re-connect for seven hours, and they still don’t know the real cause of the problem. This was the worst incident of this kind for UK trading in more than eight years.

Last year, in November, the London Stock Exchange had to close its bidding for a similar problem, which left traders without live information for more than 40 minutes. But the largest failure is still that which shut down the entire exchange for eight hours in the April 2000. Today the problem coincided with a rally in European stocks and a surge in the trading volume following the U.S. Government’s decision to take control of Fannie Mae and Freddie Mac, underlines Bloomberg.com. About 352 million shares were traded before 9am in London today, more than double the length from the same period last week.

In a moment thousands of screens froze; all the computers connected to the British system were affected by the blackout, leaving City traders desperate and angry. The London Stock Exchange attempted to calm its customers by giving accurate details of the situation, emphasis on ‘attempted’. Traders were left infuriated without given a valid cause or timescale for the problem.

The total opportunity cost of today’s disaster has yet to be calculated. The incident has highlighted that connectivity is still a serious issue to combat in today’s online world otherwise we risk compromised freedom at home and the suspension of the FTSE 100 for most of the working day!

Something that you should know about the Stock Exchange

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“Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That’s the other guy’s problem. Nothing you have ever experienced will prepare you for the absolute carnage you are about to witness. Super Bowl, World Series – they don’t know what pressure is. In this building, it’s either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you’re up half a million in soybeans and the next, boom, your kids don’t go to college and they’ve repossessed your Bentley. Are you with me?”

Spoken by Dan Ackroyd in the 1983 film Trading Places as the two main protagonists are about to enter the stock exchange, but how close is this to the real thing? Common preconception is that it resembles a cattle auction on steroids as traders with dangerously high blood pressure throw absurd contorted hand signals across the room that appear to be complete nonsense but when in actual fact they are making or breaking people’s pension fund. Well, that may be slightly over-egged but you get the point.

Indeed, the first task of the morning for many businessmen in the City of London is to check the latest developments in the FTSE 100. But what is behind these numbers? How does the Stock Exchange work? We certainly could not presume to explain the complexity of the stock market in our little blog, but we can give you a tidbit of info on the system used for trading: The name of this particular method of communication between traders was called open outcry and it was a precise language to buy and sell orders in the pit (the trading floor). This system is still used in the London Metal Exchange; other than in the New York Mercantile Exchange, in the Chicago Mercantile Exchange, the Chicago Board of Trade, the Chicago Board Options Exchange and in the Minneapolis Grain Exchange.

However, In the Computer Age – the Fast Century, everything claims a faster, cheaper, more efficient way to achieve the best result by using a new generation trading system. It was in June 2007 when the London Stock Exchange’s new trading system went live: a new technology platform with a higher speed of trading and a better system capacity: market participants are now able to manage trades in around 10 milliseconds, knowing company prices within 2 milliseconds. New market strategies had to be rebuilt on this new system and nothing has been the same again.

So it seems that the ‘absolute carnage’ of the trading floor is now the stuff of (movie) history. The carnage rather has moved to a trader’s comfortable chair in an office of a large glass-clad tower block in Canary Wharf somewhere. That’s 21st century trading for you…