In the ongoing arms race among exchanges to provide low latency, win order activity and broaden their businesses, the latest move is the London Stock Exchange's announcement today that it will acquire MillenniumIT, a Sri Lankan-based technology services company serving the capital markets industry, in a transaction expected to be completed in mid-October.

MillenniumIT will provide the Exchange with a low latency trading system to replace its current TradElect platform. It is hoped that the backing of the Exchange will help MillenniumIT grow its global exchange technology business.

Xavier Rolet, chief executive of the London Stock Exchange, told the Wall Street Journal earlier this month of his plans to ditch the existing TradElect platform, which was installed only two years ago and cost 40 million pounds to develop.

"Rolet's move to scrap TradElect is just one of a number of bold decisions that have signaled the chief executive's determination to break with the past and shake up the 208-year-old exchange," the paper wrote. Among other actions, the CEO has conducted a reorganization that resulted in the loss of more than 200 jobs, the Jounal reported.

"Improving our technology and increasing our competitive position in the fast-moving trading environment is vital," Rolet said in a statement today. "This transaction enables the Group to implement a new, more agile, innovative and efficient IT capability for our future business development as well as running a new cash trading platform which will provide substantially lower latency, significantly higher capacity and improved scalability. It will also offer cost saving opportunities in the future and give the Group a footprint in Asia. Moreover, MillenniumIT is a proven business, already serving multiple clients in multiple geographies, including some of the best known in their fields."

MillenniumIT's CEO, Tony Weeresinghe, will stay on and report directly to Rolet. "This transaction with London Stock Exchange Group is a tribute to the innovative culture of our company, the quality of our technology solutions and our deep pool of talented staff," Weeresinghe said today. "The Group's backing gives us the resources to continue supporting our existing customers, expanding the company into other markets and investing for the future."

David Lester, Director of Information and Technology, London Stock Exchange Group, said: "MillenniumIT are a leader in developing low cost high performance trading platforms and financial markets software. Going forward, they will be the Group's in-house software development team, gradually replacing our current suppliers and bringing intellectual know-how and properties fully within the company. We are excited that by the end of 2010 their proven trading platform will provide our clients with sub-millisecond trading latencies, giving the Group a very fast, multi-product, cost efficient scalable trading platform. The transition will be carefully managed, with further enhancements to TradElect planned in the interim."

The LSE will begin migrating clients to MillenniumIT's trading system from the end of 2010, replacing TradElect, Infolect, and other interfaces. The new platform will allow the Exchange to enrich its functionality, in particular for Italian clients, with the possibility of accommodating both trading after hours and stop loss orders.

IT development and operational costs for the Exchange will be reduced, it says, resulting in estimated annual cost savings of at least 10 million pounds in the fiscal year 2011-12 time period.

Depreciation of investment in the current TradElect trading platform will be accelerated as a result of the transaction, and further planned upgrades that take place in the interim will be taken as operating expenses in the period they occur. In total, these are expected to represent non-recurring incremental costs of 25 million pounds in fiscal year 2010.

Under the terms of the Offer, the Group has offered to acquire 100 per cent of MillenniumIT's shares for cash consideration with a share alternative. It is estimated that 73% of the total deal consideration will be paid in cash, with the rest in new LSEG shares to be issued.