When Antoine Shagoury took on the role of CIO at the London Stock Exchange, he embarked on an ambitious program of reform at the venerable, but embattled, institution. Several years on, he reveals how technology is driving the growth of the entire business. By James Rundle
The last 10 years have been a period of intense reflection and change for every traditional stock exchange. Fragmentation of liquidity in Europe following the implementation of the Markets in Financial Instruments Directive (Mifid), and the rise of multilateral trading facilities (MTFs) such as Bats and Chi-X, threaten these institutions’ existence. Antoine Shagoury, CIO at the London Stock Exchange (LSE), found this challenge exciting rather than daunting.
The first thing that attracted him to the role was LSE CEO Xavier Rolet and the senior management team’s vision of the future of the market and exchanges. Shagoury knew he could help make that vision a reality. “I was prepared to change the tires on a truck moving at 60 miles per hour,” he says. “We took a calculated risk to build a system that would position us as the fastest exchange in the world, and we turned our own world upside down to do it. We rebuilt the exchange from the inside out, from physical infrastructure systems, and messaging protocols, all the way through the organization and operating culture—everything was changed.”
That reform was long overdue—and sorely needed. For several years, technical hitches and misfires with its electronic trading system, TradElect, threatened the LSE’s reputation for being a solid business that paired reliability with location, presence and resources. The exchange hadn’t reacted with enough speed to a rapidly transforming market.
“We didn’t have much choice,” Shagoury says. “We had to do something, and we had to do it soon. We were facing a growing technical challenge from our competitors—we weren’t on a par with the speed of accessing our market and providing execution certainty to our clients. You can’t sustain your business like that, and as a primary market, you have to be able to facilitate the business that clients are demanding.”
The challenge with such a large-scale reformation stemmed from the technical aspects as well as in maintaining the operation of the business. The exchange’s public image was just as important, and it necessitated a complex process by which the visual persona of the LSE continued to project its presence, while it changed its footing to become as nimble as its most agile competitor, and as trusted as the most dependable institution.
Such an ambitious project required someone with a deep and abiding connection to and understanding of business and technology. Shagoury didn’t always fit the bill. In high school, he considered a career in corporate law, and later found himself attracted to architecture. Finance was in his blood, however, as his father worked in the retail side of the industry, and it was while helping him at work that Shagoury found his niche.
“My real introduction to technology was working with my father as a teenager at his bank in New York,” he explains. “At that time, there was a real push to adopt inter-networking in retail banking, and mortgage and loan origination was begin automated, and I was a free resource. I found that I enjoyed going through the technicalities, such as getting systems up and running—even from the most basic level of connectivity and networking, applications and configurations. I really enjoyed it.”
Thus, Shagoury switched to designing systems rather than buildings, and working with digital plumbing rather than lead piping. While at college in Rochester, NY, his course gave him a perfect combination of the technical aspects that he’d enjoyed so much before, as well as education on how it intertwined with business practices.
Following his graduation and two years at Datastream Corp., Shagoury joined agency broker Instinet, which helped to instill in him a philosophy about business practice that he has carried throughout his career. The culture at Instinet was such that Shagoury was constantly asked where he thought he could add value. “They never limited you,” he says.
As a result, he was able to work in almost every area of the business—from the trading floors to technical operations. “That excitement—that adrenaline—only added to the personal attraction,” he says.
Shagoury spent a decade at Instinet, interacting with clients and learning his trade through constant feedback from end users. His progression from the position of manager in advanced client-site engineering through to CTO prepared him for taking on his next role at the American Stock Exchange (Amex) in 2003, first as a consultant and then as both an executive vice president and CIO.
At Amex it was a turnaround—Shagoury would design systems, implement them, and then receive instant feedback from the floor traders about what worked and what didn’t. It was a development ecosystem of sorts that worked in a cyclical loop. Amex was eventually bought by the New York Stock Exchange, where Shagoury continued specializing in the business side of operations management. Then, in 2010, the London Stock Exchange came calling.
One aspect of Shagoury’s personality that helps to explain his success at the LSE is his boundless energy. He doesn’t sit still for long, he thinks quickly, he talks fast, and his sense of humor colors every point he makes and every memory he relates.
It’s no surprise that his reforms had a remarkably short gestation and implementation period. The LSE Group bought MillenniumIT in 2009 to strengthen its technology division, and had seen success in terms of speed and reliability, but it had to force through technical migration to the platform speedily in order to stay competitive. Expanding on that, other exchanges—such as Oslo Børs last year—have also adopted it.
In all, the LSE has completed five migrations, the most notable being the Millennium rollout of the Turquoise MTF, followed by the main cash markets in the UK.
“I don’t think anyone in the market has ever done what we’ve done in such a short time period,” he says. “Everything we’ve tried to do has been competitively level-setting and feeds directly back into the business. We had legacy platforms running the UK cash equity markets, the retail bond markets, and we had to introduce change. But that wasn’t small change—it was a quantum change. We were rebuilding everything, from the physical connections and the means of accessing our systems to the protocols and languages that our clients use to connect to us. Then we were changing the actual systems themselves. We changed our market, delivered an extensible platform, reduced operating costs and complexity, and decreased latencies by an order of magnitude, and that was anything but a simple process. When you’re dealing with hundreds of clients—global institutions—you have to introduce that type of change in a way that isn’t destructive to their business, their clients or to our markets.”
All of this was done over the course of one year, and in technical terms, it was four major structural overhauls of the LSE’s system architecture—a phenomenal technological shift by any standard.
As the technology changed, so too did the focus of the entire business. The LSE’s most recent results showed that its technology services division grew by 15 percent in a 12-month period, led by the success of MillenniumIT.
Fundamentally, the LSE is still a place where clients are brought to market to raise capital, and that will never change, Shagoury says. But the ways in which the business as a whole will grow in the future are being driven by the technological aspects and services that the LSE can provide.
“We’re the facilitator of the business, and technology has become the engine that drives the business forward,” he says. “The acquisition of MillenniumIT has made us more technically flexible and responsive to client needs. There are simple aspects such as performance and capacity, but we have to bring it to the next level, working with customers to develop new products and services. With this growth, the new challenge is to remain technically current, and that’s not taken lightly. Now we’re at that point, and we have to ask how we can harvest that maturity and the technical currency, and keep delivering value to our business, our clients and our marketplace.”
Diversification is one of the key areas in which the LSE has managed this. Along with its MillenniumIT migrations, the exchange’s UnaVista system for post-trade services has grown significantly, along with its other technology-based offerings, such as its MTF, Turquoise.
The ability of the LSE to create new index-linked products and synthetic instruments rapidly, and demonstrate them to clients, says Shagoury, is also a growth point for the immediate future. With regulatory reform at full speed in Europe and the US, he sees this as an area in which the LSE can expand.
“I think there are tremendous opportunities in risk management and surveillance. I don’t mean the fundamental functions that people immediately think of, but rather technical automation and providing the tools to enhance management of market and member interaction—‘regulating’ the market” he says. “Can you manage notional risk at a user, desk, firm and market level, and can you calculate it in real time? While you’re trading on our markets, can you detect fat-finger errors or programmatic errors on trading strategies or algorithms? That’s an area where we can grow, and I think it’s a huge opportunity for the exchange, the LSE Group, and even the industry. Enhancing the ways we can match speed with market management certainty brings confidence back to the market, and ultimately investors back to it—not just institutions, but real individual investors.”
Along with revamping from the inside out, the LSE has also had upsets on the business side in recent times. Nasdaq OMX launched a hostile takeover bid in 2007 that the LSE managed to fend off, while its own proposed merger with the TMX Group fell through in mid-2011.
Since then, however, it has established more unique initiatives and has pursued a program of acquisition. Last month, after a lengthy discussion period, the LSE posted a bid for a majority stake in LCH.Clearnet, which remains subject to shareholder approval. The deal would allow the exchange to capitalize on regulatory reform for the trading of derivatives. The LSE has also been linked, along with the Singapore Exchange, with a bid for the London Metal Exchange in media reports, although it declines to comment on this.
The LSE also recently announced a project to post real-time share data on Google, an aspect of information dissemination that—coupled with the LSE Group’s purchase of FTSE, and the ability it now has to create new synthetics—plays into the idea of market improvement.
“The way I look at the Google agreement is that it’s building the market, not just from the professional side but from the investor side,” Shagoury says. “Opening the market so people understand what’s happening is part of our commitment, our obligation. It’s fundamental to the growth of capital markets, driving information down to the individual investors. If you look at some of the established retail markets, the investor is a real driving force, and that’s what you want to promote here too.”
This idea of a more communal approach to market economics through technology and other areas appeals to Shagoury. “Capitalism is about wealth creation, and we’re a part of that process, but we’re also part of the economic community,” he says. “This community is global, of course, but we’re no less obligated to help support stability in that community. There’s balance there. It’s a great job that we have—we have to think and act globally. We can’t be biased toward one market. This is, again, one of those companies where you have a rare opportunity to contribute, and if you couple that with a top-down desire to drive a bottom-up contribution to change, that’s a great combination in any business.”
For Shagoury, who describes himself as challenge-driven, this has been the project of a lifetime. He cites his background at Instinet and Amex, and coming from a supportive family, where the emphasis was always placed on doing what you love, as reasons why he is where he is today.
So what would Shagoury’s ideal job be? “You know, I actually have no idea,” he says. “I love what I do, and I can’t see it stopping unless I run out of energy.”
Luckily for the LSE, that seems unlikely.
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