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A little competition could make for a tense exchange

THE volumes were tiny yet symbolic. A test parcel offered here. A curiosity bid there.

THE volumes were tiny yet symbolic. A test parcel offered here. A curiosity bid there.

But for the first time, they were trades not made on a monopoly market run by the Australian Securities Exchange. Share trading in Australia took its first steps into the world of competition yesterday as Japanese-owned rival Chi-X opened for business. Immediately, prices fell and revenue began bleeding from the erstwhile monopolist.

Chi-X said nearly $4 million in shares changed hands in more than 800 trades in a limited market, offering six stocks and two exchange traded funds on the new platform.

It's not the end for the ASX just yet. It performed about $4.3 billion in trades yesterday. While the boss of Chi-X, Peter Fowler, wasn't keen to disclose many details, information available on Chi-X's website and via data provider Bloomberg reveals how small were the baby steps that Chi-X took on day one.

Just 2000 shares in Leighton were traded on Chi-X compared with 700,000 on the ASX, data shows. And 62,000 BHP shares were traded on the new platform compared with more than 13 million on the ASX.

While Mr Fowler told journalists an "initial look" at prices on the two exchanges showed that "throughout much of the day better prices were available on the Chi-X market", data published by the two exchanges shows Chi-X did not provide the intra-day low on any of the six company stocks traded yesterday compared with the ASX.

Share price spreads differed significantly across the two exchanges, according to published data.

While BHP shares traded almost identically across the two platforms, big price differences could be observed in stocks such as Leighton Holdings and retailer Woolworths. Leighton traded in a price range on the ASX of $21.61 to $22.38 before closing at $21.84. On Chi-X its low was $21.72, its high $22.07 and it closed at $21.92. Profiting from the spread may have been difficult given low liquidity.

The different prices can be expected to smooth out as greater liquidity moves into the alternative market, in particular from high frequency traders looking to profit from price differences between the exchanges in the flash of an eye using high-powered computer programs.

A week after the ASX was shut for half a day due to a technical glitch, Mr Fowler said: "I'm very pleased, delighted to say we've had a largely uneventful day, no surprises. It was exactly what we were hoping for."

Traders used the day as a "road test", he said.

"I have a feeling that some of them were very much toeing the water, just to test their systems were operating properly.

"Anything we see in the next few days is likely to be somewhat artificial. To try and draw out any profile of the market going forward from anything we are doing in these early days is unrepresentative."

Traders do not choose to trade on either Chi-X or the ASX rather, when they execute a trade, they are provided with a "best execution obligation". A smart router automatically looks for the best price.


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