JSE undecided on costly IT infrastructure

JSE CEO, Nicky Newton-King says that the group is still undecided on how to replace its 20-year old back office infrastructure, having already impaired more than R300 million in the last eight years.

On Thursday (16 August), the JSE Limited reported that, while revenue grew by 2% to R682.8 million during the first six months of the year, net profit after tax declined 60% to R100.7 million.

Operating costs increased by 34% primarily as a result of a R72.6 million impairment after a decision not to complete the Market Services Solution (MSS), part of the JSE’s Systems Replacement Project (SRP).

The JSE added that, as a result of the MSS impairment, its executives would forfeit the retained portion of their 2011 bonuses.

The Financial mail noted that, over the past eight years, impairments on IT had increased to R328.9 million, including a R33 million write-off in 2010, R223.3 million in 2011, and R72.6 million in the first half of 2012.

In an interview on the Money Show on Talk Radio 702, Newton-King highlighted a “very difficult first half” for the JSE, but added it was in-line with its peers, globally, in “tough” market conditions for exchanges.

“We are quite pleased in the number of successes we’ve had,” she told show host, Bruce Whitfield.

“We’ve had a key back office system that we have been trying to replace. That back office system has been in place for 20 years, it’s critical to our surveillance, and to our guarantee of market settlements. We’ve been trying to replace it with next gen technology for eight years.”

“We came to the conclusion we couldn’t do it, and once you come to that conclusion, you really do have to take the hard pain which is to impair. We impaired at the beginning of the year, we’ve impaired the last bit now. And now that frees us to look forward to what we are now going to do with regard to our equity market development,” Newton-King said.

The head of the Johannesburg bourse clarified that the group’s trading system (front office) was brought back to SA from London in July, and implemented on time and within budget.

“It’s been pretty satisfactorily operating ever since then. The back office system which we impaired is a system which then gets fed data from trading environments,” Newton-King said.

Newton King described the back office system to an octopus, which, although in need of replacement with next generation technology, “it has so many different areas that it impacts and so many different tentacles, we have actually come to the conclusion we have to replace it in pieces, and not in its entirety, at once, which is what we were trying to do”.

“We are still deciding whether we actually want to, in fact, replace it, or whether or not a programme we are going through at the moment, which is to revisit our entire way our equity market works, will, in fact, suggest that there may be different technology and different types of systems we would want,” the CEO said.

“Either which way, it is expensive, but the nature of the exchange, its an electronic beast and we are going to always be dependent on technology and reinvestment in technology.”

Underlining the group’s recent IT achievements, Newton-King said in a statement on Thursday that the group had completed its data centre (built to tier 3 specifications) and disaster recovery site and implemented the new equity trading system and SENS upgrade on time and on budget and moved it to Johannesburg from London.

“These changes will enable us to provide enhanced speed and functionality to our clients. We also announced a number of fee waivers to thank equity market participants for the enormous effort they put into enabling us to go live with the new trading engine,” Newton-King said.

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JSE undecided on costly IT infrastructure