The Johannesburg Stock Exchange is in talks about switching to the London Stock Exchange’s (LSE.LN) MillenniumIT trading platform. The deal would help to cement the existing relationship between the two exchanges and be seen as a boost to the LSE’s efforts at creating a global technology franchise.
Under the deal, the JSE would move from its present equities trading system, also provided by the LSE, onto MillenniumIT, the Sri Lankan platform that was acquired by the LSE in December 2009, according to a source familiar with the situation. Talks are understood to be at an advanced stage. The JSE’s present contract with the LSE expires in 2012.
The source stressed that no agreement has yet been reached. The LSE declined to comment.
The two exchanges have had a close relationship since 2002 when the LSE licensed its old equities trading system, JSE SETs, to the South African exchange. In 2007, Johannesburg signed a further five-year contract with the LSE which saw it move onto the TradElect system.
Problems with TradElect led to speculation that the relationship had gone sour. The TradElect system is accessed via a dedicated communications link between the two cities, meaning the South African exchange went offline when the LSE suffered a major outage in September 2008.
Market watchers had assumed that the JSE would move onto new platform after the LSE acquired MillenniumIT. But the exchange has considered other technology providers, one source said.
Nicky Newton-King, deputy chief executive of the JSE, confirmed that the exchange is looking for a new IT platform but would not be drawn on whether a deal is imminent. A decision to move away from the LSE’s new platform would be embarrassing for the London exchange, market-watchers say.
The MillenniumIT suffered teething problems last November when the LSE’s smaller pan-European market Turquoise suffered a two-hour outage two weeks after migrating to the platform. The incident, which was later attributed to “human error”, saw the LSE postpone the migration of its main market onto MillenniumIT until February 14.
Building a major technology franchise is vital for the LSE if it is to continue to diversify its revenues and compete with the likes of NYSE Euronext (NYX) and Nasdaq OMX (NDAQ), who have extended their brand and influence in several emerging markets through major technology deals, analysts say.
Failure to agree a deal with the JSE would be a major setback: “If the JSE moves away from the LSE to another technology provider it would be a blow for the LSE, as it could cast doubt over the reliability of the MillenniumIT platform,” Simmy Grewal, a trading analyst at Aite Group, said.
Yesterday, the LSE announced its quarterly results for the final three months of last year, which saw revenues from its technology business increase by 11% to ?11.4m, compared to the same period in 2009. This reflected the contribution of “full quarter revenue at MillenniumIT,” according to an LSE statement.