AQUA: ASX’s new market September 17, 2007
Posted by James Webster in : finance , trackbackEither in reaction to the sooner-or-later entry of AXE ECN and liquidnet into the Australian equity market business, or through simply a desire to innovate and provide more options to investors, the ASX has issued a consultation paper revealing their plans for AQUA, ‘a market for investment products and managed funds’. It was actually issued in July this year and the due date for submission responses closed in early August, I have only just managed to find time to read it!
Its not a new idea, for example the London Stock Exchange lists many structured products and exchange traded funds. ETFs are big on many other global exchanges and there are already a few index ETFs on the ASX. Nevertheless one proposed aspect of AQUA will make it a welcome one.
The ASX will be splitting AQUA up into two markets; the Trading Market and the Quotation Market. The Trading Market will allow brokers to buy and sell units in the listed funds and products in the same way as shares. The Quotation Market however will provide only a facility for price discovery and settlement of off-market trades. About a year ago I worked on a system to support the unit pricing and unitholder transactions of a structured product where the underlyings were managed funds… were the Quotation Market around then (assuming the funds were listed on it) getting the daily unit prices of these funds as input to our own unit price calculations would have been much simpler.
There are some interesting questions asked by the paper regarding Net Asset Value and disclosure such as how often a fund’s NAV should be disclosed and should it vary depending on the style of the fund… a long-only fund investing in Australian equities only can easily provide a daily NAV, whereas a hedge fund-of-funds product may only be able to quote it monthly in arrears (i.e. when it knows the value of the funds it has itself invested in). If funds with a long asset valuation cycle are listed on AQUA’s Trading Market at what price will they trade? Will they typically trade at a discount to NAV as frequently happens with Listed Investment Companies on the ASX or will AQUA force all trades on the Trading Market to occur at the last unit price set by the fund manager?
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