Chi-X Australia Pty, the country’s first foreign-owned stock exchange operator in 150 years, opened for trading today, pledging to drive down prices as it battles to take market share from monopoly bourse owner ASX Ltd. (ASX)
ASX faces its first competitor just days after a network error crippled its trading platform for four hours on Oct. 27. Chi-X, which is trading just eight securities this week, plans to offer an alternative platform for brokers buying and selling all shares in the S&P/ASX 200 Index from next week. The newcomer would be able to keep trading in circumstances such as last week’s halt, Chief Operating Officer Peter Fowler said.
“The whole advent of competition is going to lead to lower charges,” said Angus Gluskie, who oversees more than $300 million at White Funds Management Pty. in Sydney. “But if you fragment the market too much and have a multitude of participants, you’re also likely to have less robust infrastructure, and that means a greater number of outages or technical issues.”
Chi-X, as the only foreign-owned market operator since Australia’s original stock market opened in the southern city of Melbourne in 1861, says it will compete with ASX predominately on price. It is the first rival to ASX under a plan by the Labor Party government of Prime Minister Julia Gillard to turn Australia into a financial hub by introducing competition in the Asia-Pacific’s fourth-largest equity market.
“It’s a landmark day, and it’s the start of the process, rather than the end,” Jason Keady, director of markets and operations at Chi-X, said in an interview in Sydney today. “There’s genuine demand here for competition and a real alternative to the ASX. People have seen what competition has done to the European and North American markets in terms of delivering outcomes for investors and reducing price and increasing innovation.”
ASX’s international ambitions were dented in April when Treasurer Wayne Swan rejected a merger of the bourse with Singapore Exchange Ltd. (SGX), saying the move amounted to a takeover and wasn’t in the national interest.
Chi-X is using a so-called maker-taker pricing model to attract volume. The structure is designed so that brokers offering to buy or sell securities pay 0.06 basis point of the trade’s value, while those that complete the transaction pay 0.12 basis point. That’s cheaper than ASX, which charges 0.15 basis point, or 15 cents for every $10,000, for each side of the trade.
Citigroup Inc., Credit Suisse Group AG, Morgan Stanley, Deutsche Bank AG, UBS AG and Merrill Lynch are among 22 brokerages that will use the new bourse. Australia’s financial regulator has made it mandatory for brokers to connect to both platforms under a “best-execution” policy.
Chi-X Australia is a subsidiary of New York-based Chi-X Global Inc., which is owned by Nomura Holdings Inc. (8604), Japan’s biggest brokerage.
Stocks trading on Chi-X during its “soft launch” this week include BHP Billiton Ltd. (BHP), the world’s biggest mining company, Leighton Holdings Ltd., Australia’s largest builder, Origin Energy Ltd., the nation’s No. 1 energy retailer, and Woolworths Ltd., the biggest retailer.
Chi-X plans to offer trading in the remainder of the benchmark S&P/ASX 200 index and about 56 exchange-traded funds from Nov. 9, subject to approval from the Australian Securities and Investments Commission, Keady said.
Chi-X processed 215 trades totaling more than A$1 million ($1.1 million) during its first two hours of operation today, Hugh Fraser, a spokesman for the company in Sydney, told Bloomberg News via e-mail.
Financial Services Minister Bill Shorten said having competition between bourses will help in situations such as last week’s computer glitch. “I think having two markets will be advantageous in the unusual situation that we encountered,” Shorten told ABC Radio on Oct. 28
Chi-X’s Fowler agreed. “There’s no reason why if the ASX went down, Chi-X couldn’t continue operating and conversely that if Chi-X went down, ASX wouldn’t continue as normal,” he said in a telephone interview on Oct. 28.
“We will have 22 participants that represent 90 percent of turnover so they will be able to switch order flow to whoever is up and operating.”
Traditional bourses are facing rising competition from alternative systems such as so-called dark pools, off-exchange platforms that offer investors anonymity and don’t publicly display prices. Chi-X Global has launched alternative venues in Canada and Japan.
Chi-X Canada had 10 percent of Canadian equities in the third quarter, data from the Investment Industry Regulatory Organization of Canada shows. Chi-X Japan accounted for 2.7 percent of the Nikkei 225 Stock Average by value traded in September, according to the company.
It may be harder for Chi-X to garner market share in Australia as ASX has already created new platforms including VolumeMatch, an anonymous platform for block equity trades, and PureMatch, a platform for high-frequency traders, which are similar to the Chi-X offerings. ASX has also lowered its prices.
“I’d suggest that we’d lie somewhere between Canada and Europe,” CFO Fowler said. “Unlike the European environment and the Canadian environment, Chi-X Australia will just be competing against the single incumbent exchange.”
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