Australia’s 1st ECN gains momentum… February 7, 2007
Posted by James Webster in : finance , trackback…with the announcement that they have applied to ASIC for an Australian Market License. An AML is the key regulatory requirement for operating a financial market within Australia with the notable exception of OTC markets. ASIC’s list of licensed markets includes quite a few I was not aware of, including the stock exchange of Golden Circle (a Queensland food processor).
It will be interesting to observe the effect that this ECN will have on the liquidity of Australian shares. Australian equity liquidity has traditionally been lower than that of the US equity markets where several ECN’s operate in competition with NASDAQ. I wonder whether the new ECN will adopt a quote-driven approach in contrast to the ASX’s order-driven approach (also see Investopedia’s description of the difference between quote- and order-driven markets).
Speaking of the differences between market structures, I have just finished Professor Larry Harris’ Trading & Exchanges which discusses the economic pros and cons of these different approaches amongst the many other issues of capital market structure. For example, the profits that attract the dealers who ‘make the market’ in a quote-driven market are ultimately transaction costs to the traders who seek to gain utility through markets. Markets are after all zero-sum games.
Trading & Exchanges is a very comprehensive book and it comes highly recommended by many people, myself included!
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