Swinging the AXE: part deux April 21, 2008
Posted by James Webster in : finance , trackbackA review of the latest cautious steps the Australian equity market is taking towards multi-venue trading:
- January 26th: Submissions close on ASIC’s second discussion paper (CP-95) on competition for market services. The full list of submissions can be found here.
- February 8th: Instinet announces intention to launch its Chi-X alternative trading system down under. It appears that they managed to get in a submission for CP-95 as well.
- March 27th: The National Stock Exchange of Australia (a very small market focusing on small-cap firms) announced a joint venture with Enterprise Pacific to establish the Asia Pacific Technology Exchange. The intent of the market is to provide a venue for Asia-Pac tech startups to raise funds. Various news articles draw parallels with the NASDAQ but perhaps comparing ‘APTEX’ with the LSE’s AIM (Alternative Investment Market) might be a more accurate comparison.
- March 31st: AXE announces that Credit Suisse Australia has joined as a shareholder in AXE ECN. The press release states that the “AXE shareholders account for more than 40% of equity trading in ASX listed securities”, demonstrating just how much the ASX has to loose in transaction fees.
- March’ish: The AXE ECN website has gotten a lick of paint and the following statement:
March 2008: ASIC provides the Hon Nick Sherry, Minister of Superannuation and Corporate Law with advice relating to the framework for competition in markets services and AXE’s application for an Australian Market Licence. AXE is confident that the advice to the Minister is positive.
As I write this post however the ASIC website is quiet on the specifics of this advice. A brief search through Hansard has also come up blank.
There has been some media commentary as well:
- Paul Kerin writes an article in The Australian (‘ASX crying wolf to remain monopoly’, March 18th) damning the ASX’s monopolistic behaviour and demonstrates that other exchanges have reacted positively to competition from ECN and ATS:
Exchanges facing competition have disowned earlier wolf cries. Roland Bellegarde, equity trading boss at NYSE Euronext, says: “Do we fear fragmentation? No. We are seeing not fragmentation but new volumes coming in”, adding that “there is not a shred of evidence” that competition in the US raised spreads.
Competition has also made them lift their games to embrace previously damned innovations.
Trade execution speed (latency) is vital to capture the best deals. ASX’s new trading system’s latency (20-30 milliseconds) is pathetic. Chi-X’s is 2-5 milliseconds. Many exchanges have cut latency to counter ECN competitors. LSE’s is now 6 milliseconds.
- An article co-written by Allan Fels and Fred Brenchley for The Age (‘A regulatory dilemma as multiple operators may create markets mayhem’, April 19th) is more cautionary in its tone, suggesting that ASIC may not have the resources to deal with the supervision of a decentralised equity market and perhaps establishing a new regulatory body with the sole responsibility of market supervision might be the way forward.
Of course, the opinions of these commentators are somewhat reflective of the political biases of their respective newspapers! At a time where Aussie shareholder’s are seeing their equity investments take a wild ride and the mounting effects of the credit crunch add up in Oz the new Rudd government will be keen to not misstep in their final decision surrounding the licensing of AXE, Liquidnet and Chi-X.
The ASX website is currently pointing out that they have been awarded ‘Exchange of the Year’ by Structured Products magazine. The release points out in particular the warrant products from JP Morgan and ABN AMRO that the ASX has helped bring to the market… mentions of similar products from the AXE shareholders are conspicuously absent!
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