ASX reports “slow and steady” start for ultra-fast trading venue

In its first few days of trading, the Australian Securities Exchange’s new low-latency trading platform, PureMatch, has seen only “modest” volumes, as market participants “wait and see” how the offering will fare.
By None

In its first few days of trading, the Australian Securities Exchange’s (ASX) new low-latency trading platform, PureMatch, has seen only “modest” volumes, as market participants “wait and see” how the offering will fare.

Launched 28 November, the PureMatch order book followed hot on the heels of the 31 October rollout of alternative trading platform Chi-X Australia.

“PureMatch has only been live since Monday. It’s been a slow and steady start. Only 10 stocks are available so volumes have been modest,” said a spokesman for the ASX.

The order book has been set up for trading the most liquid ASX-listed stocks and domestic exchange-traded funds (ETFs). Since launch, ten securities have been available for trading – ANZ Banking Group, Rio Tinto, BHP Billiton, Telstra, Commonwealth Bank, Wesfarmers, National Australia Bank, Westpac, Newcrest Mining and Woodside Petroleum. Pending regulatory clearance, by 12 December, ASX aims to provide access to all S&P/ASX 200 stocks, plus ETFs through PureMatch.

On its first day of trading, Chi-X Australia’s 22 launch participants executed 800 trades worth a total of A$3.84 million on six stocks. Chi-X Australia, owned by trading technology provider and market operator Chi-X Global, whose ultimate parent is Japan’s Nomura, expanded its instrument universe to all S&P/ASX 200 component stocks and ASX-listed ETFs on 9 November.

The ASX is yet to say how many participants have connected to PureMatch or what were trading volumes in the first few days of operation, but some market participants contacted by said they were adopting a “wait and see” approach. Firms that had connected to the new venue concurred with the ASX view that volumes had been low.

“This is not something we plan to access in the near term,” said one trading desk head based in Hong Kong who actively trades on ASX’s main exchange and Chi-X Australia. The trader spoke on condition of anonymity.

He said PureMatch faced challenges onboarding participants due to various other platform launches and upgrades in the region. “PureMatch launched barely a month after Chi-X Australia and just before a scheduled upgrade to the Hong Kong exchange. There is a lot of work involved in connecting to new venues and with such back-to-back venue launch activity in Asia Pacific, market participants have had to make a choice. They would have been better off launching towards the end of January.”

Hong Kong Exchanges and Clearing (HKEx) will go live with its new AMS/3.8 trading platform on 5 December.

“Participants have been focussed on testing their connectivity and PureMatch’s functionality,” a spokesperson for ASX said.

“We will follow PureMatch closely and may connect if the liquidity is there but for the moment it’s a case of wait and see,” said a source at an ASX member brokerage based in Hong Kong.

In response to the trading venue competition introduced in October via the Australian Securities and Investments’ market integrity rules, ASX has split its existing securities trading business across three platforms: VolumeMatch for block trades; PureMatch for low-latency trading; and TradeMatch, launched November last year, TradeMatch as the ASX’s multi-functional, multi-asset class trade facility. All venues run on ASX Trade, the Australian exchange’s ultra-low latency trading engine based on NASDAQ OMX’s Genium INET system. ASX Trade has a latency of 300 microseconds and PureMatch has a capacity of 100,000 orders per second.

“While PureMatch may have some advantages designed to attract the higher volume/frequency trading players, it is in fact open to all participants of TradeMatch,” said Clare Rowsell, head of client relationship management and marketing, Asia Pacific, for agency broker, ITG. “This means any trade done on the traditional TradeMatch order book may be executed on the PureMatch order book.”

With PureMatch presently providing more competitive pricing than TradeMatch, Roswell said she could see a scenario where liquidity migrated to the new platform. Trades on TradeMatch cost 0.15 basis points and while PureMatch also charges 0.15bps for passive liquidity, this is reduced to 0.05bps for participants reaching volume qualification thresholds. But until 28 February 2012, the passive volume threshold will be set at zero, meaning all market participants that rest orders on PureMatch will be charged 0.05 bps. Chi-X Australia is presently charging 0.12 basis points for aggressive orders and 0.06 bps for passive orders.

“We expect trading to pick up when all top 200 stocks plus ETFs become available from 12 December,” said the ASX’s spokesman. “ASX is pleased that all is operating normally and that a high speed/low-latency alternative order book is now available.”

However, another agency broker said his institutional clients were wary of trading on a platform specifically developed for high-frequency trading.

“PureMatch is billed as a platform for HFT, but high-frequency traders don’t want to trade by themselves. They want to mix with other investors, yet a many institutional clients are not attracted to the idea of trading on an HFT platform,” he said.