Italian Crash New Threat to Online Stock Trading

ROME (07/07/2000) - The collapse of Milan's electronic-share trading system on Wednesday has underscored the fragility of computerized trading systems used by European stock exchanges. A problem with the database of authorized dealers caused an eight-hour delay in the opening of the market, the second time since April that technical problems have prevented dealing for the better part of a day.

Other European stock markets have faced similar difficulties. In April, the London Stock Exchange suffered an eight-hour blackout, and last November, the Zurich Stock Exchange remained closed for two days as a result of computer problems.

"The problem was immediately identified, but it took longer than expected to rectify it," a Milan stock exchange source said. "Some of the dealers' codes were not recognized by the computer, meaning that they would not be able to trade. It is our responsibility to provide equal access to the market for everyone, so we were forced to suspend trading."

The problem with the dealers' registry was caused by tests on a new covered warrants market that were conducted on the trading system the previous evening, a source involved in investigating the causes of the failure said. "It was simply a maintenance operation, and some of our technicians failed to respect procedures," the source said.

The Bourse trading system is operated by Societa Interbancaria per l'Automazione SpA (SIA), a company controlled by Italy's major banks. The system operates on software entirely written by SIA, which was updated in 1996 to give it a capacity of 40 transactions per second. The system is capable of handling more than 1.6 million bids per day and has seen pressure increase as a result of the strong growth in online trading in recent months, the SIA source said.

"Our procedures are very good, and our services have ISO 9000 certification," the source said. "This failure was caused by human error, by a failure to respect procedures, which is less worrying than if it was the result of a technical inadequacy. The New York Stock Exchange has also had problems. Even the safest systems are continually prone to failure," he said.

The fourth largest stock market in Europe, after London, Frankfurt and Paris, Milan was the first in the world to introduce after hours trading, the stock exchange source said. It has also been seeking to offer its customers innovative services; the latest, an electronic market in covered warrants, is due to become operational on July 17.

The system failure caused widespread anger among Italian stock brokers, who said the lost day's trading cost them approximately 20 billion lire (US$9.9 million) in lost commissions. The Bourse insists on stock brokers meeting certain minimum technological standards, brokers complained, "but at this point, they would do better to control their own technological systems, not ours."

The stock exchange regulatory body, Consob, has called for an independent inspection of the Bourse's trading system, following what it described in a statement as "grave dysfunctions," and Assorisparmio, an association representing small investors, has threatened to sue the Bourse for damages.

The problems encountered by the SIA trading platform are likely to make it more difficult to resist calls for the adoption of Germany's Xetra trading platform when Milan and Madrid join London and Frankfurt in an integrated European stock market, analysts said. London and Frankfurt have provisionally agreed to adopt the German system, and it will be difficult for Milan to insist on retaining the SIA system, which has absorbed annual investments of 50 million euros (US$47.7 million) over the last few years, if it continues to break down.

"It is too early to comment on what the outcome will be," the Milan Bourse official said. "The Italian Bourse will have to take account of the common London-Frankfurt platform if it really does emerge. That will be one of the subjects under discussion when we begin negotiations on a possible merger."

The Bourse can be contacted in Milan at +3902-724261. SIA can be contacted in Milan at +3902-30051 or on the Web at

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