Australia's new listed derivatives venue FEX Futures Exchange is set to launch mid-year, after receiving regulatory approval to trade by the Government.
The new derivatives exchange has partnered with global clearing giant LCH.Clearnet, which was granted a licence to clear instruments traded on FEX this week from the Australian Securities and Investments Commission (ASIC).
FEX Global chief executive and director Thomas Price welcomed the licence approval, calling it a "significant milestone" for the growth of Australia as a financial markets hub in Asia.
FEX was focused on challenging the Northern Hemisphere, including the exchange operators, which provide more than 90 per cent of imported services into Asia.
Though the company, which operates an OTC derivatives platform and owns half of an energy-based securities exchange, said there was still a lot of work to be done.
The new service will not compete in instruments listed on the Australian's Stock Exchange's derivatives venue ASX 24, but experts have suggested quasi-competition may be achieved by offering similar instruments to those traded on ASX 24, which could facilitate a liquidity rush and drive down trading prices.
The role of LCH.Clearnet could be significant here, as overall trading costs could come down for clients using the Anglo-French clearing house to clear trades in other markets.
Although the existence of another listed derivatives venue could offer increased liquidity and arbitrage opportunities, Stephen Grob, London-based director of Fidessa, today told theTRADEnews.com FEX had a long way to shake ASX's hold on the market.
"Any derivatives exchange that is trying to take liquidity away from an incumbent always faces the same problem, which is people only trade where the open interest is," he said.
"I think you might see a little bit of price offering, but I don't think that will be hugely significant."
LCH.Clearnet's chief executive of repo and exchanges, Alberto Pravettoni, said his company's extension to Australia reinforced its commitment to expand geographic reach.
The clearing house also plans to apply for a clearing and settlement facility license that would enable Australian banks to clear OTC interest rate swaps as members of the SwapClear service.
LCH.Clearnet has already tried to move into the Australian equity market, but was turned down in February by the Australian Treasurer Wayne Swan.
The treasurer called for a two-year ban on competition in equities clearing, forcing the country's only alternative venue for equities Chi-X Australia to continue clearing trades through ASX.
Grob said LCH.Clearnet's licence to clear derivatives wouldn't hurt its chances to be granted access to the equities market in the future, but equally it may have no effect on the outcome of ASIC granting it an equity clearing licence.
"There is an awful long way to go before [equities] clearing is open up to competition. Mainly because given the size of the market, it just doesn't warrant the cost and complexity of having a multi-clearing solution as we have in Europe," he said, adding the significant changes to the Australia's trading environment would force the regulator to take its time deliberating on a final decision.