LSE's Computer Fix Is 'Taking Longer Than Expected'

By Sarah Thompson and Ambereen Choudhury

Sept. 8 (Bloomberg) -- London Stock Exchange Group Plc, Europe's oldest independent exchange, said attempts to fix its biggest computer failure in more than eight years is ``taking longer than expected.''

The fault, which started at about 9 a.m. today, has left some traders without prices and unable to buy or sell shares for about six hours. The exchange was still trying to re-connect customers at 2:20 p.m., according to the LSE's Web site. It didn't say when the trading will restart and spokesmen for the LSE weren't immediately available to elaborate.

The breakdown is the longest disruption since April 2000, when a computer fault shut the exchange for eight hours. It coincided with a rally in European stocks today and surge in trading volume following the U.S. government's decision to take control of Fannie Mae and Freddie Mac. About 352 million shares were traded before 9 a.m. in London today, more double the amount in the same period the previous week.

``It's so frustrating as it's been going on for four hours,'' said Ian Murrell, a director at Wills & Co. Stockbrokers Ltd. in London. ``It's potentially one of the busiest days of the year given the overnight news.''

The benchmark FTSE-100 index had gained as much as 3.8 percent in early trading before the fault. Meanwhile, the benchmark Dow Jones Stoxx 50 Index surged 3.9 percent by 1:35 p.m., the biggest gain in about six months.

Traders said they were unable to place orders for U.K. shares as European stocks rallied today. UBS AG was up 11 percent in as of 2:35 p.m. in Zurich, while Deutsche Bank advanced 6.7 percent in Frankfurt.

Severe Storm

``We are appreciating what is going in other markets, which have moved on from the earlier levels,'' Murrell added. ``We just can't take advantage of it.''

The LSE shut for almost eight hours on April 5, 2000, after a problem with the London Market Information Link, a computer system used to connect the exchange with data vendors and dealers. The exchange closed for a day on Oct. 16, 1987, after a severe storm battered southern England, leaving many traders unable to get to work.

LSE also faces competition from as many as seven new competitors, among them Chi-X Europe Ltd. and Turquoise, an electronic market backed by nine investment banks. Chi-X, which started in March last year and now accounts for about 18 percent of all trading in FTSE 100 shares across exchanges, said it handled trades all morning.

`Worse Time'

``Today's meltdown from the LSE couldn't have come at a worse time,'' said Sejal Patel, a London-based trader at CMC Markets Plc. ``It has served to highlight the benefits of having an additional exchange.''

London Stock Exchange shares traded up 41.5 pence at 800 pence as of 2:54 p.m. in London on Chi-X. About 68,000 shares had traded on the platform, compared with 268,000 that were traded on LSE before the computer fault stopped trading.

``It's a good thing that there is choice now in Europe and people can choose,'' Chi-X Europe Chief Executive Officer Peter Randall said in a telephone interview today. ``Alternative platforms offer resilience to the system.''

The LSE was forced to extend its closing auction in November last year after a similar fault left traders without live prices for 40 minutes. LSE spokesman John Wallace declined to say if the exchange will extend trading hours today.

``The LSE will come out of this very, very badly,'' said Omer Bhatti, head sales trader at WorldSpreads Group Plc in London. ``People will begin to think seriously about having alternatives.''

To contact the reporters on this story: Sarah Thompson in London at sthompson17@bloomberg.net; Ambereen Choudhury in London at achoudhury@bloomberg.net