The London Stock Exchange (LSE) shut down for seven hours on Monday due to a software problem as opposed to too much trading volume as was initially speculated, Reuters reported. Reuters quoted an LSE spokesperson as saying:
"It was software-related, a coincidence, due to two processes we couldn't have foreseen. We've introduced a fix and we're confident it will not happen again."
Hmm, the LSE may be confident that that particular software fault may not occur again, but it does sow some level of doubt that their are many others that are also "unforeseen" lurking about.
The LSE is now conducting an investigation into the shut-down, and I will be curious to see just how "unforeseen" the software fault actually was.
The shutdown happened just about at the worst possible moment, from the LSE's perspective. Given the US government takeover of the mortgage companies Freddie Mac and Fannie Mae over the weekend, trading volume was expected to be very heavy on the exchange. Some reports claim that UK trading firms lost nearly $1.5 million dollars apiece as a result of the shutdown.
Second, the shutdown damaged the LSE's reputation as a reliable exchange to trade in. As the second largest exchange in the world, any problem not only affects a multitude of traders but creates uncertainty and doubts about their trades going though properly, which traders hate.
Third, the LSE has been promising to deliver both faster and more reliable service in order to remain competitive with the New York Stock Exchange. As I noted, just last week it created a way to complete sub-millisecond trades. For such an outage to occur on such an important day, and only a few days after touting its new capabilities, makes any future LSE promises ring a bit hollow.