Chi-X makes push for market share

MARKET upstart Chi-X Australia has made an aggressive push for market share ahead of its official launch next month offering stockbrokers hefty fee discounts over the Australian Stock Exchange.

By InvestSMART · 12 Oct 2011

By InvestSMART ·
12 Oct 2011

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MARKET upstart Chi-X Australia has made an aggressive push for market share ahead of its official launch next month offering stockbrokers hefty fee discounts over the Australian Stock Exchange.

The move is expected to see a competitive response by new ASX boss Elmer Funke Kupper who only started his new role last Thursday.

Chi-X is planning to offer a 40 per cent discount on ASX's standard fee per trade, according to a note sent to stockbrokers outlining the trading platform's new pricing structure. Chi-X will charge 0.18 per cent per trade compared with ASX's offer of 0.30 per cent per trade.

Chi-X Australia chief operating officer, Peter Fowler, said the lower trading fees were aimed at facilitating a more liquid Australian market. Such a move benefits all investors, he said.

The pricing structure provides an incentive for institutions to direct trades into the Chi-X order book by charging the provider of liquidity less for each trade.

This is known as the "maker taker" pricing model. It is common in North American and European markets and has been key in attracting liquidity to alternative trading venues.

After nearly four years of planning and regulatory approvals, Chi-X will open for business in Australia on October 31. The launch will break the ASX's long-standing monopoly over share trading.

Mr Fowler said Chi-X has received strong support from the market with 22 firms lodging an application to participate at market launch.

ASX halved its trade execution fees last year. This was partly behind an 11 per cent drop in the ASX's cash market revenue over the past 12 months. A spokesman for ASX was not available for comment last night.

Some 22 broking firms have signed on to use the new trading platform, including major brokers such as Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and UBS.

Chi-X recently announced the first week of its trading will be a "soft launch" that will provide settlement cycles across six blue chip stocks. These are BHP Billiton, CSL, Leighton Holdings, Origin Energy, Woolworths Ltd and QBE Insurance.

From then, the new platform will allow for trading in shares of all of Australia's 200 largest listed companies. Before executing a trade, brokers will rely on smart order technology that compares stock prices across both the ASX and Chi-X platform.

Stockbrokers have been told by market regulator Australian Securities and Investments Commission to disclose their "best execution" policies to clients in the lead-up to the launch.

This information involves details on how the smart order routing affects the way the broker handles client orders.

ASIC has told brokers that it expects both ASX and Chi-X to align their trading hours until at least March next year.

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Frequently Asked Questions about this Article…

When will Chi‑X Australia officially launch and what does the launch mean for investors?

Chi‑X Australia is scheduled to open for business on October 31 after nearly four years of planning and regulatory approvals. For everyday investors the launch breaks the ASX's long‑standing monopoly on share trading, introduces competition in execution venues, and is aimed at increasing market liquidity and potentially lowering trading costs.

How do Chi‑X fees compare with ASX fees and what savings could investors see?

Chi‑X plans to charge 0.18% per trade compared with the ASX's standard 0.30% per trade — roughly a 40% discount. That lower fee structure is designed to cut costs for brokers and institutions, which can indirectly benefit investors through lower overall trading costs and improved market liquidity.

What is the maker‑taker pricing model and how might it affect market liquidity?

The maker‑taker model charges less (or pays) the provider of liquidity — the 'maker' — and charges the order taker a standard fee. Chi‑X is using this model to incentivise institutions to place liquidity in its order book. This approach, common in North American and European markets, tends to attract more trading interest to alternative venues and can increase liquidity for investors.

Which brokers and firms have signed up to use the Chi‑X trading platform?

According to the article, about 22 broking firms have signed on to use Chi‑X, including major global brokers such as Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and UBS. Chi‑X also received 22 applications to participate in the market launch.

What will Chi‑X's 'soft launch' include and which stocks will be available first?

Chi‑X's first week will be a 'soft launch' that provides settlement cycles for six blue‑chip stocks: BHP Billiton, CSL, Leighton Holdings, Origin Energy, Woolworths Ltd and QBE Insurance. After that initial stage the platform will allow trading in shares of Australia's 200 largest listed companies.

How will brokers decide where to execute my trade — ASX or Chi‑X?

Brokers will rely on smart order routing technology that compares stock prices across both the ASX and Chi‑X platforms before executing a trade. The market regulator ASIC has also told brokers to disclose their 'best execution' policies to clients leading up to the launch, explaining how smart order routing affects handling of client orders.

Will trading hours on Chi‑X match the ASX and for how long?

ASIC has told brokers that it expects both ASX and Chi‑X to align their trading hours until at least March of the following year, so investors should see matching trading hours across the two venues for that period.

What impact has competition already had on ASX revenues and fee policy?

The ASX halved its trade execution fees last year, and that move contributed to an 11% drop in the ASX's cash market revenue over the past 12 months. Chi‑X's imminent launch and lower fees are expected to prompt further competitive responses from the ASX.