Market operator and trading technology provider Chi-X Global will continue its push into Asian markets next year by growing its market share in Japan and Australia, as well as exploring new opportunities in other markets in the region, according to CEO Tal Cohen.
“We have a strong focus on growing our markets in Japan and Australia. The Australian launch was well received but now the hard work begins in earning the trust of our clients, building the market share and competing with the incumbent exchange. In Japan, we’re looking to change the landscape on a couple of fronts. From a regulatory perspective, proprietary trading systems (PTSs) are still regulated similar to an over-the-counter (OTC) market in the US, which is something that continues to hinder competition. We’re also trying to bring about change by introducing new products and pricing programmes in Japan,” Cohen said. “We’re excited about our prospects.”
Chi-X Japan, a PTS, launched in July 2010, will introduce a new maker-taker pricing model that rewards market makers with credits for posting orders. For the month of January 2012, market makers will receive credit of 0.1 basis points for providing liquidity. The taker fee for removing liquidity will be 0.2 basis points. The move is intended to be complimentary to the new post-only order type Chi-X Japan launched on 14 November 2011.
Trading volumes on Chi-X Australia have grown steadily following a successful launch. Seven weeks after launch, Chi-X Australia typically accounts for approximately 1% of the overall market, trading 3-5% of flow in Australia’s most liquid names. According to data vendor Thomson Reuters, during its first full month of trading in November, Chi-X Australia traded US$757 million worth of Australian equities, giving it a market share of 0.88%. The ASX accounted for the remaining 99.12%, trading US$85.1 billion.
Chi-X Australia uses ASX Clear and ASX Settlement facilities, but switching from the Australian Securities Exchange’s post-trade services to a third-party offering is on Chi-X Australia’s longer-term agenda.
“Beyond Japan and Australia, we will continue to look for new opportunities in the Asia Pacific region by conducting our due diligence and understanding the type of regulatory reforms that may take place and whether our business model can add value. If our core tenets can benefit the overall market through greater transparency, efficiency and lower the cost of overall cost of trading through the use of technology, we’ll pursue that goal,” Cohen added.
As to whether Chi-X Global has intentions to establish partnerships in other markets of a similar nature to current joint ventures Chi-East and Chi-FX, Cohen said Chi-X Global is open to this “as long as we can ensure that we can address the present inefficiencies in that market place and then capitalise on the opportunity.”
Launched in October 2010, Chi-East, the pan-Asian joint venture dark pool between Singapore Exchange (SGX) Chi-X Global, supports trading in 3,264 securities, including all SGX-listed shares, all Hong Kong main board-listed shares, the component stocks of Japan’s TOPIX 100 and all listed exchange-traded funds in the three markets. Brokers Instinet, Deutsche Bank, Morgan Stanley, Nomura and UBS all participated on Chi-East from launch. For Q3 2011, Chi-East reported US$ 71.06 million in value traded on US$ 4.96 billion of orders routed. In the quarter, the dark pool achieved average price improvement of 11.76 basis points.
Chi-FX, a joint venture with Brazil’s BM&F Bovespa exchange that helps international investors manage currency risk, is scheduled to go live next year.
Cohen added that the entry of Chi-X Global’s new investors has given the company new momentum to grow its existing markets and pursue new opportunities. In October this year, Chi-X Global confirmed that five external investors – Bank of America Merrill Lynch, GETCO, Goldman Sachs, Morgan Stanley, and Quantlab Group LP – had acquired minority stakes in the exchange provider from Instinet, owned by Japanese bank Nomura. In December, UBS also bought a minority stake in the company. “We believe that an independent, agnostic and consortia-based ownership model is the best for us,” he said.
Cohen declined to comment on the possibility of Chi-X’s Asian operations going down a similar path as that taken by Chi-X Europe, which was acquired by US-owned market operator BATS Global Markets. Planning for the migration of the Chi-X Europe trading platform to BATS Europe technology is currently underway and expected to be completed in the second quarter of 2012.
Cohen has served as CEO of Chi-X Canada since its 2008 launch and was named CEO of Chi-X Global’s Americas business, which also includes the FX joint venture with BM&F Bovespa, in 2009. Previously, he spent 10 years in senior roles at Instinet, including head of Instinet Canada. Chi-X Global is majority owned by Instinet, the agency broking arm of Nomura.
Author: Jill Wong