More Fragmentation Down Under

Terry Flanagan

Market fragmentation has come into full effect in Australia in recent months with the introduction of multiple new trading venues.

The newest of these is Goldman Sachs Sigma X, a dark pool run by the bulge bracket broker-dealer. It would be the fifth market that the dark pool runs in, in addition to the U.S., Europe, Asia and Canada.

“The continued fragmentation of the Australian market, coupled with growth in low latency trading activity globally means that connecting investors with alternate sources of high quality liquidity will play an important role in the Australian market’s evolution,” Goldman Sachs Electronic Trading Asia co-head and managing director Shane Bolton said.

Debuting in 2005, Sigma X currently is second in U.S. market share among dark pools, trailing only Credit Suisse’s Crossfinder ATS, according to Rosenblatt Securities. Dark pools allow institutions to trade large block orders anonymously and without market impact.

Dark trading in Australia is slowly picking up steam. Liquidnet, which is the world’s largest independent dark pool operator, recently set a record for trading volume over a single month, with its Australian operation trading close to A$1 billion in February.

The exchanges have been keen to bolster their operations in the face of more competition.

The Australian Securities Exchange, the largest trading venue in the nation, recently said that it is considering extending its trading hours to attract Asian investors, as well as ease its listing requirements for smaller companies. It is the latest move by the bourse to better compete with the inception of competition.

Late last year, alternative trading system Chi-X Australia launched in the Oceanic nation. It quickly reached over 2% market share within its first month. The company is aiming for 10% market share in the nation, which would be an important symbolic milestone for the company, which is trying to break the near monopoly of the ASX. It will look to do that through aggressive pricing.

The ASX followed up shortly after Chi-X’s inception with the launch of PureMatch, a new trading system aimed at high-frequency traders. “ASX recognised the changing market dynamics and the opening up of equity markets to multiple market operators would likely result in a growth in high frequency trading,” said Richard Murphy, ASX General Manager Equity Markets via email.

The ASX also slashed its own fees in half in the months leading up to Chi-X’s launch and has put a renewed focus on increasing speed.

The second largest trading venue in Australia, the 75-year-old National Stock Exchange of Australia, followed suit by dropping its broker application fees with the hopes of challenging the listings dominance of the Australian Securities Exchange. The goal is to have more brokers offering NSX-listed securities to a larger group of domestic and international investors. It will also “enhance NSX’s attractiveness” to companies considering listing on an Australian stock exchange and “help challenge ASX’s listing monopoly.”

In contrast, the ASX charges a A$100,000 fee to join the venue as a broker, on top of the various setup and connectivity fees.

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