New Venue Gaining Traction
Competition in Australia is on the rise as the newest trading venue, Chi-X Australia, steadily gains a foothold.
Chi-X Australia launched in late October and quickly reached over 2% market share within its first month. Market observers note the company is aiming for 10% market share in the nation, an important symbolic milestone for the company, as it tries to break the near monopoly of the Australian Securities Exchange. It will look to do that through aggressive pricing and new initiatives.
“It is still very early but we are working on a range of initiatives that are designed to influence broker routing strategies as well as attract additional participants and liquidity providers,” Jason Keady, director of markets and operations at Chi-X Australia told Markets Media. “We are also mindful that significant change was introduced during 2011 and it is important to give the industry time to fully adapt to the new competitive landscape before making further change.”
At its launch, 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. It will look to more than triple that number later in the year.
“All brokers are required to have best execution capability by October 31, so we anticipate the number of participants will grow to something in the order of 60-80 by the latter part of 2012,” said Keady.
Just like it has done in other markets, Chi-X Australia has introduced innovation and lowered transaction fees for participants. The ASX 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 ASX also launched PureMatch, a trading system aimed at high-frequency traders, shortly after Chi-X’s inception. The alternative venue is now taking the steps to also topple the ASX’s monopoly on clearing services.
“There is only one clearing and settlement provider in Australia and it is operated by ASX,” said Keady. “We continue to support the establishment of alternative clearing service providers. Competition in the trading space has already reduced trading fees significantly and we anticipate alternative clearers will also have a dramatic impact on the cost of clearing in Australia, which would further lower transaction costs. This would make the Australian market more efficient and internationally competitive.”
The other major trading venue in the region, the National Stock Exchange of Australia, is also taking steps to chip away at the incumbent, having recently dropped its broker application fees with the hopes of challenging the listings dominance of the ASX. 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.
The 75-year-old NSX, formerly known as the Newcastle Stock Exchange, is publicly traded on the Australian Securities Exchange. It is all-electronic, and is the second largest stock listing venue in Australia, specializing in growing companies.