Alternative trading venue Chi-X Australia, which goes live on 31 October, will up the stakes in its forthcoming battle for market share against the Australian Securities Exchange (ASX) by switching from the incumbent bourse’s clearing and settlement services to a third-party offering, but not until market participants are used to its new trading processes.
Tal Cohen, CEO of Chi-X Global, parent company of the soon-to-be-launched trading platform, said Chi-X Australia did not want to be “tethered to the ASX” and that an independent post-trade solution would be forthcoming, possibly in partnership with a global clearing provider.
“That’s where we’re headed, but don’t feel this is the right time to introduce additional workflows. Our priority on day one is to ensure a smooth launch for all market participants,” he told theTRADEnews.com. While some have asserted that Chi-X Australia’s case for attracting liquidity away from the ASX is weakened by the absence of a cheaper clearing and settlement process, Cohen argued that the path taken by the newcomer had made it easier for trading members to get up an running.
Chi-X Australia will soft launch, with just six stocks in its first week, simultaneously with the introduction of new market integrity rules by the Australian Securities and Investments Commission. But unlike Chi-X Europe, which launched in London in 2007 with a low-cost clearing solution developed in conjunction with Fortis Bank, Chi-X Australia will start operations using its rival’s ASX Clear and ASX Settlement facilities.
Cohen did not rule out the possibility of leveraging in Australia the post-trade solution already developed with Anglo-French clearing house LCH.Clearnet for Chi-East, its dark pool joint venture with the Singapore Exchange. Chi-East allows participants to trade leading stocks listed in Hong Kong, Japan and Singapore off exchange, with clearing and settlement completed in their home markets. “Right now our focus is on getting through the launch, after which we will look for new ways to lower the overall cost of trading,” said Cohen. “One option might be to reassess clearing in Australia.” He added that the concepts and workflows created for Chi-East’s clearing model could form the basis of an Australian post-trade solution.
Unlike, Europe and the US, Asia’s securities markets are dominated by a small number of geographically remote, vertically integrated exchange operators, with close links – typically based on common ownership – between trading platforms and post-trade utilities. While Cohen believes that increasing transparency of post-trade costs will put pressure on incumbent providers, he says competing solutions are unlikely to emerge from within the region. “To go up against the verticals, you have to have the skills and the scale of the global post-trade providers, many of which are looking for business opportunities outside of their existing markets,” he said.
Earlier this week, Chi-X Global announced that parent Instinet, the agency broker owned by Japan’s Nomura, had diluted its ownership stake in the exchange operator and trading technology provider. Brokers Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley, and electronic market makers Getco and QuantLab, have all acquired stakes, but Instinet retains a majority stake in Chi-X Global.