Published On: Wed, Jun 30th, 2010

Its Amazing What a Little Exchange Competition Will Do

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ASX Running to CompeteWhile it was widely expected and long overdue on March 31, 2010 Chris Bowen the Minister for Financial Services, Superannuation and Corporate Law announced that the Australian Government did, at long last, endorse trading competition. He even announced “in-principle” approval of Chi-X Australia Pty Ltd’s Australian market license application. That license itself has been pushed off until Q1 2011 and the reasons for it merit an article of its own.

In the face of its de jure monopoly being revoked the normally staid Australian Securities Exchange (ASX) has been anything but since Mr. Bowen’s announcement. The ASX has been running like a rabbit to retain its market share and avoid ending up like NYSE, NASDAQ or LSE.

One of the significant changes has been to the fee structure which takes affect July 1. Among these items is the reduction of its headline trading execution fee from 0.28 basis points (bps) to 0.15 bps a 46% decrease. The lowered fees should fuel additional trading. Now keep in mind that the ASX earns around a 58% net profit margin and pays out 90% of its dividends to shareholders at the expense of the industry and at least that savings will be bourne by the exchange members clients. A maker taker program was curiously absent

There is a New Data Center coming to the ASX August 2011 as they race to ramp up professional trading services like co-location and high speed market data. You’ve got to give them credit though for being the first exchange in Asia to offer colo services.

The ASX is getting a robust and resilient new trading platform this November powered by NASDAQ OMX Genium INET dubbed ASX Trade. Round trip trade execution should be on par with the rest of the mature western markets and should further stimulate high frequency trading (HFT) too. Iceberg orders will also be made available.

The futures segment of the ASX has even bought some space in an Equinix data center in Chicago that will allow local incumbents to connect directly from that hub and trade Aussie futures directly at the exchange. Great idea!

ASX VolumeMatch went live just this week as well. This is the exchanges answer to the darkpool (though they don’t characterize it as such) where large orders can be matched anonymously and ideally at an improved price. The ASX is charging a hefty 1.5bps for matching orders. While it’s cheaper than the cost of trading on the ASX (31bps according to the latest ITG Liquidity barometer) once the Chi-Easts and Liquidnets of this world start operating in Australia I expect flow on VolumeMatch to dry up at those prices.

Somewhere in 2012 the ASX will offer PureMatch a new trade execution service and ASX Best a smart order routing product.

It’s great to see the Aussies take the lead in Asia on a truly competitive marketplace. Its just a shame it has taken the region as a whole so long to offer trading services. The end beneficiary is mom and pop anyway.

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  1. steve cook says:

    Liquidnet already has a presence in Australia.

    http://www.liquidnet.com/globalPresence/australia.html

    Would be interested to see their view on VM. Anyone from Liquidnet care to comment?

  2. Steve says:

    Steve,

    Liquidnet and (Chi-X) are seeking an Australian Markets Licence, allowing
    execution of trades free of ASX crossing rules and without using a broker intermediary.

    Thanks for the note but the article is referring to competition within Australia.

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