Investigation launched into LSE shambles

A high level investigation was under way last night as to how a glitch caused by the downloading of corrupted data into an information feed caused the London Stock Exchange's trading system to go down for eight hours yesterday.

Exchange officials were quick to rule out suggestions that a hacker deliberately penetrating the system's security, or a latent Y2K computer bug, were responsible for the exchange's worst systems failure.

Martin Wheatley, the exchange's head of stratagem said: "This is a pure software glitch, which we are trying to get to the bottom of. Our security has not been breached."

The failure, which caused orders to back up in London and had a severe knock-on effect on trading patterns throughout Europe, came on the last day of the tax year, normally one of the busiest trading days for the exchange. It came at a sensitive time for the exchange, which is jockeying for position as exchanges merge across Europe.

Technology is seen by brokers as a key battleground in consolidation, with Frankfurt, London and Euronext - the three-way alliance between Paris, Amsterdam and Brussels - all seeking to claim that their trading systems are superior and should be adopted as standard Europe-wide. Tradepoint, which is setting itself up as a pan-European trading platform rivalling both London and the other major exchanges, had its busiest day ever. However, not all dealers are set up to trade on Tradepoint or Instinet, the Reuters-owned system.

Gavin Casey, chief executive of the London Stock Exchange, apologised publicly to users, many of whom will have lost substantial sums through the inability to trade. "We very much regret the disruption market users have experienced during the course of the day."

He promised extensive work not just to ensure that the immediate problem is tackled, but also "to take whatever additional steps are required to ensure that the system is robust and reliable in future."

Exchange officials said they would be up all night trying to ensure the glitch was ironed out in time for trading to resume normally today.

This apology did not pacify angry dealers, many of whom sat on their hands all day, complaining bitterly about the lack of information on what was happening. One market player said: "Somebody's balls should go. There's a smell of panic from all the regulatory bodies. Breakdowns like this happen, but they should have a recovery system better than this."

The problem first emerged when the Stock Exchange computers were started up before the official trading day was due to start at 7.30am. Officials said that, for some reason, the output programme handling the feed to the market place began running before the routine that processed the previous day's prices had finished. As the Exchange started to open it was displaying the previous day's prices for some stocks. This prompted complaints from users that their quotes were being incorrectly relayed. The Stock Exchange was forced at 11.30am to shut down altogether for four hours. Also affected was the Regulatory News Service, the information feed.

The Stock Exchange said the problem was with the London Market Information Link, a system that feeds information from its central computer to the market. Its failure meant that brokers could not see announcements or stock prices in real time. This meant market makers had to make their own assumptions about movement of the FTSE indices based on the prices of individual stocks.

Investors were able to do deals directly with institutions over the telephone, but by 3.30pm only 15,000 trades had been done compared with a daily average of 150,000.