LONDON BRIEFING:London Stock Exchange debacle was a serious wake-up call for its ambitious new rivals, writes Fiona Walsh
NORMAL SERVICE was restored to the London Stock Exchange yesterday, after Monday's calamitous seven-hour shutdown, but the LSE's already rocky relations with the City will take rather longer to repair.
It is now a full 48 hours since London traders found themselves locked out of the share-buying frenzy that followed the rescue of US mortgage giants Fannie Mae and Freddie Mac. But the LSE has yet to produce an acceptable account of what actually went wrong.
The exchange's obtuse explanation - that a "connectivity issue" was to blame - has enraged traders who found themselves sidelined on what should have been one of the busiest, and most lucrative, days of the year.
Share prices roared ahead in the hour or so of trading that did take place first thing but, from shortly after 9am until 4pm, the market was in suspended animation.
In the end, after barely 90 minutes of trading for the whole day, the FTSE 100 closed just over 200 points higher, but on dramatically reduced volumes.
It is a huge embarrassment for the LSE - and the timing could hardly have been worse. In a letter published in the Financial Times that very morning, LSE chief executive Dame Clara Furse dismissed the challenge of the exchange's competitors, describing the LSE's technology as "cutting-edge".
With no details of exactly what caused the market meltdown, it is impossible to know why that "cutting edge" technology failed so spectacularly. Was it the sheer volume of trades jostling to be processed in response to the massive mortgage bail-out across the Atlantic? Or was there some more fundamental system failure? And why did no back-up system kick in to save the session?
An investigation into the affair - the worst "outage" to be suffered by the exchange since April 2000 - is now under way, amid calls from furious traders for heads to roll.
Relations between the LSE and its City clients have been rocky for quite some time and, for some, Monday was just about the last straw. As one trader put it, when asked if he was angry with the exchange: "I'm always angry with the LSE, but today I'm particularly furious."
Along with the understandable fury, there was barely concealed jubilation among the ambitious band of younger and cheaper competitors, including the Turquoise and Chi-X trading platforms, which continue to snap at the LSE's heels.
One rival likened the day to the disastrous opening of Terminal 5 at Heathrow, which did so much damage to the reputation of British Airways and its chief executive Willie Walsh. Another warned that the damage to the "London trading brand" would be deep, and lasting.
The LSE's rivals should perhaps have thought twice before rushing to join the anti-LSE tirade, however.
The virtual closure of their elderly competitor for a whole session should have been their chance to shine, and to snap up business from frustrated traders.
But they suffered their own somewhat embarrassing "connectivity issues" on Monday as they noticeably failed to press home their advantage.
Far from soaring, trading volumes on the Turquoise platform were also becalmed on Monday as the market demonstrated its reluctance to trade on rival platforms without the comfort of LSE prices as a guide.
The rival platforms remain too dependent on the major exchanges. They have chipped away at the LSE's market share, and forced the exchange to reduce its prices. But if they want to carve out a serious market share, they need to see this week's debacle not just as a problem for the LSE, but as a wake-up call of their own.
• Fiona Walsh writes for the Guardiannewspaper in London
