Chi-X Australia, the alternative trading platform owned by exchange operator and technology provider Chi-X Global, traded a total of A$3.84 million across the six stocks available on the first day of its soft launch, with no reported technical hitches.
Chi-X Australia’s 22 launch participants executed 800 trades throughout the day. The soft launch will last another five trading days, allowing the trading platform to complete two settlement cycles before ramping up its stock coverage to all ASX S&P 200 stocks and exchange-traded funds.
The arrival of Chi-X Australia will offer market participants an alternative to the Australian Securities Exchange (ASX) for secondary equity trading. Last Thursday, the ASX suffered a connectivity malfunction on its platform that knocked out trading for just under four orders. The bourse claimed the glitch was not related to the introduction of Chi-X Australia. All ASX markets operated as normal today.
The ASX reported 620,457 equity trades after close of trading, a little down on the previous Monday’s figure of 631,284. October 2010’s average daily number of trades was 575,079.
Chi-X Global recently received new investment from brokers Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley and electronic market makers QuantLab and Getco, but it is still majority owned by Instinet, the agency broking subsidiary of Nomura.
Battle joined
The threat of competition has already led to a series of changes at the ASX, including a reduction in execution fees, from 0.28 basis points to 0.15 bps, and new order types and order books designed to cater for different trading firms.
In a new paper, ‘Australia: a tentative handshake with competition’, agency broker ITG notes restrictions that may hinder the new venue’s ability to build market share, such as standardised tick sizes, which limits Chi-X’s ability to offer narrower spreads, and a A$20,000 limit for all orders executed via Chi-X Australia’s hidden order type, which does not apply to Centre Point, the dark trading service offered by the ASX. However, Chi-X’s hidden order type is integrated with its lit order book, offering participants access to a wider range of liquidity compared to CentrePoint, which operates as a standalone service.
“Perhaps most significant,” continues the ITG paper, “is that the ASX will maintain the monopoly on clearing and settlement, at least for the foreseeable future, and Chi-X will be forced to clear through their centralised structure.”
Routing
UBS, one of the Chi-X Australia launch participants, has announced the addition of the venue to its best execution policy and smart order router (SOR).
The investment bank’s SOR now seeks the best price for given securities across ASX Trade, ASX Centre Point, its own internal crossing engine UBS PIN, as well as Chi-X Australia. Clients have the opportunity to switch off routing capabilities to Chi-X Australia if required.
Bank of America Merrill Lynch has also said that its SOR has also been tuned for routing to Chi-X Australia.
Meanwhile, trading technology provider SunGard has completed certification testing with Chi-X Australia to offer its Valdi suite of trading and order management tools to market participants.
“We look forward to working with market participants in Australia to help them seize the opportunities that will arise from the launch of Chi-X, which is an important step in bringing further transparency and efficiency to Australia’s markets,” commented Nasser Khodri, managing director for SunGard’s global trading business in Asia Pacific.
Preparation
Chi-X Australia first announced its intention to in February 2008 and was finally granted a provisional licence to offer alternative trading services in Australia in May 2010. The venue’s launch was held up by a series of delays including the global financial crisis and the need to adjust a number of rules and regulations in Australia.
One of these was the transfer of market supervision from the ASX to national regulator the Australian Securities and Investment Commission (ASIC), which took place in August last year.
In conjunction with the launch of Chi-X Australia, ASIC introduced new market integrity rules (MIRs), which are designed to help market participants deal with the new competitive landscape. The MIRs include a principles-based approach to best execution, details for ensuring an orderly and harmonised market following the introduction of competing venues, such as pre- and post-trade transparency obligations and order control and cancelling systems.
ASIC is already consulting on the next round of market reforms via its CP168 paper, which could introduce market making contracts for liquidity providers, pre-trade transparency thresholds for block trades and price improvement requirements for dark trades below block size.
The paper also recognises that the growth of dark trading may have to be limited, and proposes a threshold of A$50,000 for all passive dark orders, if non-displayed liquidity below block size grows by 50% in three years.