There are glitches and then there are glitches. Last week, Turquoise was left slightly red-faced when, a day into preliminary trading, a technical problem scuppered trading for “a few minutes”. Traders complained that it wasn’t working properly for anything up to 80 minutes. But this is small beer compared to the London Stock Exchange (LSE) meltdown yesterday.

At the cutting edge….

As yesterday wore on, the LSE must have been going a brighter shade of puce. It started the day with a rousing letter to the Financial Times from its chief executive Dame Clara Furse, saying the LSE didn’t fear the emergence of new tech-savvy competitors and was “at the cutting edge” of technology.

The LSE was also bracing itself for a surge in activity yesterday after the US government bail-out of Fannie Mae and Freddie Mac on Sunday led to a new market optimism. Within the first hour, 270 million shares were traded…and then the lights went out at 9.15am. Trading didn’t resume until 4pm – just 30 minutes before the end of play.

Lost connections

Trading was suspended by stock exchange officials when they realised too many brokers were losing their connection to the system. The problem lay at the feet of LSE’s new TradElect platform. The Johannesburg Stock Exchange, which also uses the platform, was down as well.

Connectivity specialists have been hot property within stock exchanges and multi-lateral trading facilities for the last year. Technology underpins the race to gain as big a chunk of the market as possible and the latest outage only reinforces the importance of having the right system and staff to gain a competitive edge.

The LSE experienced a similar problem, albeit on a much more minor scale, back in November 2007, when trading ground to a halt for the last half hour of business.

Remember Heathrow Terminal 5?

At the time, Peter Randall, chief executive of rival exchange Chi-X, told us it would be “bad form” to comment on the misfortunes of a competitor. He wasn’t so reticent yesterday, and likened the chaos to the opening of Heathrow’s Terminal 5.

But the upstarts still have a lot to prove before they can challenge the LSE’s dominance. In spite of improved business yesterday, both Chi-X and Turquoise admitted to being quieter than expected.

Duncan Higgins, head of client relations at Turquoise, said the market had “yet to reach tipping point where they are confident enough to continue trading actively on the alternatives”.

If the alternatives are to gain traction, they must invest in technology to prove they are better than the current main player. And the LSE has to stay at the “cutting edge” to ensure it doesn’t fall behind.