Fears new exchange could catch retail traders by surprise
Sydney Morning Herald
Wednesday March 31, 2010
RETAIL traders are underprepared for the moment when Australia's largest companies start trading on an unfamiliar exchange, a change that could occur before the end of this year.BusinessDay believes the government may announce the Australian Securities Exchange's first competitor within weeks, although the new market cannot open until the Australian Securities and Investments Commission takes over market supervision.At present, there are three pending applications to operate a market - from Chi-X, Liquidnet and AXE-ECN (a conglomerate of NZX Limited, Citigroup, CommSec, Goldman Sachs JBWere, Macquarie Bank and Merrill Lynch).Of the three applicants, Chi-X's plans are most advanced, while the director of Liquidnet's Australian operations, Sam Macqueen, said its needs had changed since it applied for a licence more than three years ago, particularly with ASX's removal of a 10-second rule for cross-trades.Mr Macqueen would not comment on the current status of Liquidnet's application.Retail brokers and popular online traders are waiting for guidance from officials before they startpreparing for a multimarket environment, even though it could be as little as six months away.CommSec and the owner of E*Trade, ANZ, declined to comment on preparations, saying they had yet to see ASIC's proposals.The chief executive of Bell Direct, Arnie Selvarajah, also said it was waiting for more direction before changing technology to give clients access to all exchanges.The executive chairman of Patersons Securities, Michael Manford, said it would be difficult for brokers to pass lower transaction costs on to retail clients if they happened to use one exchange rather than another."As far as I am concerned, there will be very little or no change for retail investors," he said. "They will still place their orders through the stockbroking firm and the firm will access the best price available through whatever exchange they are dealing into."But Tamas Szabo, the chief executive of the contracts for difference trader IG Markets, said trading costs had fallen after multiple exchanges were introduced in Britain, where he had also worked for IG Markets. "Just to view the ASX prices live you have got to pay a fee, and to execute on to the exchange brokers have to pay ASX fees. All of this disappears with Chi-X," Mr Szabo said.Another concern was the increasing use of "dark pools", which both Chi-X and Liquidnet specialise in. "Dark pools" are trades that occur away from the market, where the price is privately decided by brokers rather than being displayed on the exchange. Supporters argue these pools help institutions trade without moving the price too much, while critics say it hides prices from the public and lacks transparency.The chairman of the Australian Shareholders Association's Victorian branch, Ian Curry, said he was concerned that retail shareholders would miss out on price information, trading opportunities and lower trading costs once the new markets opened. No one had yet informed retail traders how they could access or trade on multiple markets, he said.But the prospect of competition has already prompted changes by the incumbent market operator.On February 18, ASX announced new computer systems that could reduce trades from 3 milliseconds to 250 microseconds, allow up to 5 million trades a day, up from the current limit of 2 million, and facilitate trading on multiple markets. These speeds are important to institutions that use algorithmic programs to arbitrage split-second price differences.IRESS Market Technology, which provides the trading platform for a significant portion of Australia's brokers, has systems in place and ready for activation, according to its managing director, Andrew Walsh. IRESS developed the technology for Canadian clients, where multimarkets have been operating for years.
© 2010 Sydney Morning Herald