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Australia joins the global fragmentation movement

I was a guest last week to mark the opening of the Australian Liquidity Centre which is not, as you might think, the latest trendy Sydney nightspot. Instead it’s the name chosen by ASX for its impressive new co-location facility and represents the exchange’s latest move to meet the imminent opening up of equities trading Down Under. The transfer of market supervision from the ASX to ASIC paved the way for alternative trading venue Chi-X to open its doors in the fourth quarter of 2011. Since that time the ASX‘s response has been pretty robust. It has created VolumeMatch, a new dark pool, and will shortly be adding the low-latency venue PureMatch into the mix. On top of this it has also announced a new smart trading workstation (ASX Best) and adjusted its fees.

So how will this latest version of the great regulation/technology experiment play out? Will Chi-X succeed in the way that it has in Europe and Canada? More important will the end investor (both retail and institutional) get a better – or even a more transparent – deal out of all this? In its favour, Chi-X looks like being the only lit alternative in the region for the time being and so will not have the likes of BATS or Turquoise chasing the same liquidity. On top of this, its clearing arrangement with the ASX simplifies the whole post-trade environment and so, ironically, makes it easier for market participants to trade away from the ASX. In addition, ASIC has made sure that Australia won’t go through the same nonsense that we’ve had in Europe over tick sizes and opening times, both of which were impediments to effective competition.  

On the other hand, the ASX has the advantage of going last in this game and has been able to see the impact that denial and/or complacency has had on the market shares of other national stock exchanges. But, whatever happens, equities trading in Australia is now on a path of no return and it will be fascinating to see how it develops. In particular, the changing shape of off-exchange trading will be vital, whether it’s buy-side crossing networks, broker dark pools, bi-lateral executions or dark aggregation services. Let’s hope that Australia learns the lessons from Europe and makes it easy for everyone to “see in the dark” and understand what is really going on.

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