Lse Deal A Breakthrough For Software Maker

The Age

Monday October 16, 2006

IAN PORTER

THE LONDON Stock Exchange has adopted an Australian share trade surveillance system and has also signed up to be a reseller of the software around the world.

The deal with the LSE is a breakthrough for Smarts Group as the LSE is in the top rank of equities markets, said Smarts director Mike Aitken.

"London ranks in the top three exchanges in the world and has the most international listings of any exchange," Professor Aitken said.

"It's our break into Tier One equities markets. There are probably 20 of those."

The Smarts software was used to identify unusual trading patterns in HIH shares and was used in evidence in the prosecution of Rodney Adler, who went to jail.

Smarts has already installed its software in 26 exchanges and regulators around the world, including the Tokyo commodities market, the second largest in the world, and the Moscow foreign exchange market.

Professor Aitken said the LSE contract was another significant step towards an eventual public float for the company. Smarts currently generates about $18 million in revenues, but that is growing faster than 20 per cent a year.

The London contract has two important aspects for Smarts.

The first is the agreement by the LSE to market the Smarts systems alongside its new trading platforms, TradElect and InfoLect, which are due to go into operation next year.

"Basically, the LSE is prepared to use its brand to promote our product. It will be marketing its new trading platform around the world and we are their preferred supplier of surveillance technology," Professor Aitken said.

He said the Johannesburg exchange already used LSE systems and that Smarts would be installed there. In addition, Tokyo was considering the new LSE platforms.

The second important aspect of the LSE contract is that the adoption of the system by the LSE has prompted nine London brokers so far to subscribe for a surveillance service using a version of Smarts so they can keep an eye on their own trading.

Professor Aitken said the bulk of Smarts sales were expected to be surveillance service contracts among brokers, fund managers and big corporates anxious to prevent any unusual trading in their operations. "We believe surveillance is not just the responsibility of the regulator or the exchange, it's the responsibility of all in the market."

Smarts operates the Capital Markets Surveillance Service (CMSS) on a completely outsourced basis from its own premises for brokers. Smarts will also handle the surveillance for some smaller exchanges, such as Abu Dhabi, which recently installed a system.

Professor Aitken said there were 18 Australian brokers already subscribing to the surveillance service, 13 in Canada and five each in Singapore and Hong Kong.

While sales of the Smarts systems to exchanges and regulators might have a potential global customer base around the 200 mark, the potential sales of the surveillance service to brokers and fund managers exceeds 40,000.

He said a 30 per cent share of this potential market would generate revenues exceeding $300 million a year.