SHAREMARKET upstart Chi-X Australia has made an aggressive push for market share before 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 started in the role only last Thursday.
Chi-X is planning to offer a 40 per cent discount to 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's chief operating officer, Peter Fowler, said the lower trading fees were aimed at facilitating a more liquid Australian market. Such a move would benefit 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, which is common in North American and European markets and has played a key role 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 Australian Securities Exchange's long-standing monopoly over share trading. Mr Fowler said Chi-X had received strong support from the market, with 22 brokers lodging an application to participate at the market launch.
They include major institutional brokers such as Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and UBS.
ASX halved its trade-execution fees last year. This was partly behind an 11 per cent drop in its cash market revenue over the past year.
A spokesman for ASX was not immediately available last night.
Chi-X recently told brokers that the first week of its trading would be a "soft launch" that provided settlement cycles across six bluechip stocks BHP Billiton, CSL, Leighton Holdings, Origin Energy, Woolworths and QBE Insurance.
From then, the new Chi-X platform would allow for trading in shares of all 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 the market regulator, the 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.
Frequently Asked Questions about this Article…
What is Chi‑X Australia and when will Chi‑X launch as a rival to the ASX?
Chi‑X Australia is a new sharemarket trading venue that will break the ASX's long-standing monopoly. After nearly four years of planning and regulatory approvals, Chi‑X plans to open for business on October 31.
How do Chi‑X trading fees compare to the ASX's fees?
Chi‑X plans to charge 0.18% per trade versus the ASX's standard 0.30% per trade — roughly a 40% discount to ASX's standard fee per trade.
What is the maker‑taker pricing model Chi‑X is using and why does it matter for liquidity?
The maker‑taker model rewards the provider of liquidity (the “maker”) with lower fees and charges takers more. Chi‑X says this model encourages institutions to post liquidity in its order book, which can help create a more liquid market that benefits everyday investors.
Which brokers and institutions have signed up to trade on Chi‑X at launch?
Chi‑X received strong support from the market, with 22 brokers applying to participate at launch, including major institutional brokers such as Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and UBS.
Will Chi‑X allow trading in all ASX‑listed shares straight away?
No. Chi‑X will run a ‘soft launch’ first, offering settlement cycles across six blue‑chip stocks (BHP Billiton, CSL, Leighton Holdings, Origin Energy, Woolworths and QBE Insurance). After that, the platform will allow trading in shares of Australia’s 200 largest listed companies.
How will brokers route client orders between ASX and Chi‑X?
Brokers will use smart order technology that compares stock prices across both ASX and Chi‑X before executing a trade. The market regulator, ASIC, has also told brokers to disclose their ‘best execution’ policies to clients so investors understand how smart order routing affects their orders.
Might the ASX change its fees or respond competitively to Chi‑X's launch?
A competitive response from the ASX is expected — the article notes the likely response by new ASX boss Elmer Funke Kupper. The ASX already halved trade‑execution fees last year, which was linked to an 11% drop in its cash market revenue over the past year.
Will Chi‑X and the ASX have the same trading hours?
ASIC has told brokers it expects both ASX and Chi‑X to align their trading hours until at least March, so trading hours should be the same across both venues for that period.
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