LSE glitch did not hinder gains -TR data

By Jane Baird

LONDON (Reuters) - Rival operators failed to benefit from Thursday's system failure at the London Stock Exchange, which gained market share despite halting trading for several hours due to technical glitches, Thomson Reuters data showed.

The LSE's market share rose by more than 5 percentage points to 62.85 percent of FTSE 100 stocks on Thursday, a day that it put all order-driven securities into an auction call period from just after 10:30 a.m. to 2 p.m.

A system failure at the exchange theoretically could drive customers to trade at its major rivals, multilateral trading facilities (MTFs) such as Chi-X and BATS.

But market players cited a combination of brokers' inadequate routing systems and the LSE's move to auction status to explain why that did not happen.

The exchange typically moves a stock into a pre-auction phrase and then holds an auction if something out of the ordinary is affecting a company, and the aim is to give people breathing room and let things calm down to prevent disorder in the market, said Richard Balarkas, president and chief executive of Instinet Europe Ltd.

For that reason, many brokers' order routing systems are programmed to stop trading when a stock goes into the pre-auction phase, he said.

"The auction phase is typically five minutes long, not three hours," he said. "The LSE should have said, 'We have a problem. Please trade somewhere else'."

Some traders depend on the LSE's pricing as the basis for arbitraging prices on the MTFs, and the LSE halt would have affected many of those models, he said.