2010 will be a busy year for Chi-X Global as the trading platform operator and technology provider prepares to launch its Chi-East pan-Asian dark pool and displayed alternative trading systems in Japan and Australia within a few months of one another.
Chi-East, a joint venture with the Singapore Exchange (SGX), is slated for a soft launch in late Q2 this year, while Chi-X Japan is planned to go live in Q3. “[The Japan launch] will be a seminal moment for us because that is probably the largest opportunity in the world in terms of market breadth and trading opportunity,” John Lowrey, CEO of Chi-X Global, told theTRADEnews.com.
However, the biggest coup of the year for Chi-X Global will arguably be the launch of Chi-X Australia which, if all goes to plan, could go live in Q4 this year. The company has waited more than two years to introduce a trading venue to compete with the incumbent Australian Securities Exchange (ASX), having first revealed its plans in February 2008.
Chi-X’s and other would-be entrants’ plans to establish venues in Australia have been delayed by a combination of staunch ASX opposition, a complex regulatory change process required to facilitate the formation of alternative venues and the financial crisis, which all but halted regulatory progress on licences.
The process is now moving ahead. On Wednesday, the Australian government approved Chi-X’s Australia’s application for a trading licence in principle. In early March, a key piece of legislation enabling the formation of alternative trading venues in Asia – the transfer of trading supervisory powers to the Australian Securities and Investments Commission – was approved by Australia’s Senate. The government now needs to sign the legislation into law and release a position paper on competition in financial markets, which is expected at some point in Q2. “Once those two things happen, the legislation will take effect on 1 October and we would hope, subject to regulatory approval, to be ready to go some time in the fourth quarter,” said Lowrey.
Chi-East will be groundbreaking as, not only will it offer non-displayed trading in stocks listed in four markets – Singapore, Hong Kong, Japan and Australia – it will also offer a multi-market central counterparty (CCP) clearing solution in the non-Singapore markets through European clearing house LCH.Clearnet. Global bank Citi will act as LCH’s settlement agent, connecting it to the relevant central securities depositories. Singapore trades will be cleared and settled through SGX’s Central Depository facility.
However, the CCP solution for Hong Kong is unlikely to be available from launch because of tax reasons. As in the UK, stamp duty is levied in Hong Kong per transfer of ownership, which occurs twice when a CCP clears a trade.
Chi-X Global is unlikely to stop at three Asian trading platforms. Opportunities are being examined in Hong Kong, China and Korea. “We believe there are opportunities throughout Asia and we look forward to making statements when are in a position to say something more concrete,” said Lowrey.
The company is also casting its net beyond Asia. “We are not only expanding in Asia, but also focusing our strategic thinking in the Americas,” said Lowrey. Chi-X Canada went live in February 2008.
Any new trading venues from Chi-X Global could take a number of forms, be they standalone entities like Chi-X Canada or joint ventures like Chi-East. “We are completely open to the economic model that makes most sense,” said Lowrey. “We will pursue partnerships if that makes more sense than going it alone. You should expect to see more partnership announcements from us in the future.”
Chi-X Global is perhaps best known for Chi-X Europe, a displayed multilateral trading facility that after three years of operation now accounts for roughly 16% of pan-European trading and 25% of the UK’s FTSE 100 blue-chip index.
However, Lowrey feels alternative trading venues in Asia are unlikely to enjoy the same benefits and thus rapid uptake as their European peers. Liquidity fragmentation caused by proliferation of venues in the west has been watched with interest in the east. “We are proud of what has been achieved at Chi-X Europe, but that’s not the way it will happen in Asia,” he said. “People in Asia are aware of what is going on; they have seen it happen twice – in the US and then Europe – and are not going to go through that.”
He added, “To an extent, some Europeans thought it was an American phenomenon and would never happen in Europe. The Asians get this story and understand the potential.”