The introduction of competition to the Australian equities market saved traders at least A$32 million ($29 million) in the first year, according to a study by the Australian Capital Markets Cooperative Research Centre.
The savings, from reduced trading fees and tighter bid-ask spreads, could be as high as A$215 million, according to researchers led by Michael Aitken, chief executive officer of the CMCRC and professor of finance at the University of New South Wales. ASX Ltd., operator of the country’s primary bourse, cut fees in 2010 in preparation for the opening of Chi-X Australia Pty, its first competitor, in October 2011.
The costs of connecting to the new trading platform and updated regulatory fees were offset by the savings, the study found. South Korea is planning the introduction of equity competition, which will make it the third market in Asia Pacific to allow alternative trading venues to compete with traditional exchanges, following Australia and Japan.
“The benefits we find in this study are consistent with what we’d expect to see from the initial break-up of an effective monopoly,” Michael Aitken, chief executive officer of the CMCRC and professor of finance at the University of New South Wales said in a statement today. “Competition has been an unequivocally positive thing for Australia.”
An average of A$418 million in shares exchanged hands on the Chi-X platform each day in the week ended Jun. 21, according to Chi-X. Shares traded on Chi-X accounted for 9.5 percent of all shares traded in Australia in the first quarter of 2013 while trades negotiated off-exchange and reported to Chi-X accounted for 7.3 percent of the market, according to the Australian Securities and Investments Commission.
ASX reduced its trading fees in July 2010 after Chi-X announced it would open a competing platform. Chi-X Australia is a subsidiary of New York-based Chi-X Global Inc., which is owned by a consortium of financial institutions including Nomura Holdings Inc. The firm also operates alternative trading platforms in Japan and Canada.
Having a choice of venues contributed to savings by enabling traders to employ strategies that take advantage of multiple markets, the study found.
Market integrity was not affected by the introduction of fragmentation because ASIC has the ability to consolidate the data feeds of both platforms to get a full picture of the market place, the study found.