11.14.2011
By Terry Flanagan

Competition Ramps Up in Australia

Following the recent introduction of Chi-X Australia down under, the established Australian Securities Exchange has responded with the launch of a new trading platform.

Chi-X Australia officially launched in the Oceania nation on Oct. 31, trading in eight securities. Full operations commenced on Nov. 9 following Australian Securities and Investments Commission approval.

“The soft launch phase went extremely well and it exceeded our expectations in terms of market activity during this period, as did the first few days of trading the broader stock universe,” Jason Keady, director of markets and operations at Chi-X Australia, told Markets Media. “We completed multiple settlement cycles without any issues which gave the participants great confidence in the market as we transitioned to the S&P/ASX 200 stocks and the ETFs.”

At the inception, 22 broker-dealers were signed up to trade on Chi-X, including Credit Suisse, Deutsche Bank, Goldman Sachs, ITG, JPMorgan, Merrill Lynch, Morgan Stanley, Penson, RBS and UBS. Another two have also recently been approved to use the platform and are expected to start trading within the coming weeks, according to Keady.

While the company is being coy regarding what kind of market share it expects to garner in the coming months, if its foreign counterparts are any indication, it will have large shoes to fill. Chi-X Europe, which was spun off and is run independently from the Instinet umbrella, took 10 percent market share of U.K. trading within a year, tripling that to about 30 percent within three years. In pan-European trading, it has about one-fifth market share. Chi-X Canada currently has about 10 percent market share after about three years.

“Right now (customers) are telling us that we can expect meaningful market share over the next 12-18 months,” said Keady.

As a response to Chi-X, the ASX last week announced the launching of PureMatch, a new trading platform targeted to high-speed/low-latency traders. The order book, which is to go live Nov. 28, will focus on trading the most liquid ASX-listed stocks as well as exchange traded funds. Like Chi-X Australia, the platform will launch in two phases, the first of which will only include 10 securities.

If all goes according to plan, PureMatch will be expanded to all S&P/ASX 200 stocks and ETFs on Dec. 12, pending regulatory clearance. The platform will incentivize liquidity providers by making it free to post resting orders for the first three months following launch. Afterwards, posting liquidity will cost .15 bps, reduced to .05 bps after reaching a certain threshold. Liquidity takers on PureMatch will be charged a .15 bps fee. Pricing will also be under continuous review. The traditional ASX trading platform charges a flat .15 bps fee for all participants. On the other hand, Chi-X Australia charges liquidity providers .06 bps while liquidity takers pay .12 bps.

In the year leading up to the launch of Chi-X, the ASX slashed its own fees in half and has put a renewed focus on increasing speed. It plans to launch a new data center early next year.

“We have a range of ideas to differentiate our product and add value to our clients in 2012,” said Keady. “These include new order types and different market features. Customers have already seen some of the benefits of competition in lower fees. Participants are getting first-hand experience with different trading opportunities and ways to secure price improvement for their clients, which is now a regulatory obligation under new best execution rules. As our liquidity providers refine their trading models, we expect them to offer tighter spreads on our market than is available on ASX and this translates into lower transaction costs for investors.”

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