Chi-X turns the key and market monopoly ends

Q: Did Chi‑X provide better share prices than the ASX on launch day?

Chi‑X’s boss said better prices were available throughout much of the day, but exchange data showed Chi‑X did not provide the intraday low for any of the six stocks compared with the ASX. Results were mixed: BHP traded almost identically across both platforms, while stocks like Leighton and Woolworths showed bigger price differences.

THE volumes were tiny yet symbolic. A test parcel offered here. A curiosity bid there. But for the first time, they were share 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.

By InvestSMART · 1 Nov 2011

By InvestSMART ·
1 Nov 2011

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Immediately, trading prices fell for customers and revenue began bleeding from the erstwhile monopolist.

Chi-X said almost $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.

But it's not the end for the ASX just yet. It performed about $4.3 billion in trades yesterday.

While Chi-X boss Peter Fowler was not keen to disclose many details, information readily available on Chi-X's website and via Bloomberg reveals how small the baby steps were that Chi-X took on day one.

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

Although Mr Fowler said 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 intraday low on any of the six company stocks traded compared with the ASX.

Share-price spreads differed greatly on the two exchanges. While BHP shares traded almost identically on the two platforms, big price differences could be observed in stocks such as Leighton and 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 the low liquidity.

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

After last Thursday's technical glitch that closed the ASX for half a day, 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 some of them were very much toeing the water, just to test their systems were operating properly."

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Frequently Asked Questions about this Article…

What is Chi‑X and why does its launch matter for Australian investors?

Chi‑X is a Japanese‑owned rival trading platform that opened in Australia to challenge the ASX monopoly. Its launch introduces competition to share trading, which can put downward pressure on trading costs and create alternative execution venues for investors.

How much trading activity did Chi‑X record on its first day?

On day one Chi‑X reported almost $4 million of shares changing hands in more than 800 trades on a limited market that offered six stocks and two exchange‑traded funds.

How did Chi‑X volumes compare with the ASX on opening day?

Chi‑X volumes were tiny compared with the ASX. The ASX did about $4.3 billion in trades that day. For example, Chi‑X traded 2,000 Leighton shares versus 700,000 on the ASX, and 62,000 BHP Billiton shares versus more than 13 million on the ASX.

Did Chi‑X provide better share prices than the ASX on launch day?

Chi‑X’s boss said better prices were available "throughout much of the day," but exchange data showed Chi‑X did not provide the intraday low for any of the six stocks compared with the ASX. Results were mixed: BHP traded almost identically across both platforms, while stocks like Leighton and Woolworths showed bigger price differences.

Which stocks were available to trade on Chi‑X when it launched?

The article says Chi‑X offered six stocks and two ETFs on its initial platform. It specifically mentions Leighton, BHP Billiton and Woolworths among the securities traded on day one.

What does low liquidity on Chi‑X mean for everyday investors?

Low liquidity means fewer shares were available to buy or sell on Chi‑X’s opening day, which widened price spreads and made it harder to profit from differences between exchanges. The article notes that low liquidity likely limited traders’ ability to exploit spreads, but prices should smooth as more liquidity — especially from high‑frequency traders — enters the alternative market.

Is the ASX at risk after Chi‑X started trading?

Chi‑X immediately put pressure on trading prices and began drawing revenue away from the ASX, ending its monopoly in practical terms. However, on launch day the ASX still handled vastly more volume (about $4.3 billion), so it remained the dominant venue while competition began to take hold.

Was Chi‑X’s opening day technically successful?

Yes. After a recent ASX technical glitch that closed the ASX for half a day, Chi‑X’s chief Peter Fowler said the opening was largely uneventful with no surprises. Traders treated the day as a "road test," checking systems and operations on the new platform.