will new exchange kick asx into action

Australian Securities Exchange (ASX) shares fell to a nine-week low after Chi-X Australia Pty Ltd was given approval to create a rival electronic market exchange that will break the ASX's two-decade monopoly.

Minister for Financial Services Chris Bowen announced on Wednesday in-principle approval of Chi-X's application for an Australian market licence that would give investors a choice of market exchanges in making trades.

US-based Liquidnet and AXE ECN have also made applications, which Mr Bowen said would be considered on their merits.

But Chi-X's licence application is the most advanced and a final decision on it will be made after the necessary regulatory framework is in place.

ASX had no comment on Chi-X's pending entry, but reiterated that the critical issue was not whether competition should exist.

Rather, a new licence should operate only when the appropriate regulatory framework and market surveillance infrastructure are in place to guarantee market integrity for investors, ASX said.

Chi-X is a wholly-owned Australian-incorporated subsidiary of Chi-X Global Inc, which is owned by global broker Instinet, itself a subsidiary of Japanese broking giant Nomura Holdings.

Since entering the UK market in August 2007 it has grown its market share of trading volume to 28 per cent and driven that of London's primary exchange, the London Stock Exchange, down to 43 per cent.

Chi-X's entry into the Canadian market in February 2008 had a similar effect, with the market share of TMX Group's Toronto Stock Exchange, dropping to 66 per cent.

Investors dumped ASX's stock on Wednesday on Chi-X's competitive threat to the ASX's 20-year monopoly on Australian shares and futures trading.

ASX's shares dropped $1.09, or 3.11 per cent, to $33.94.

The National Stock Exchange also operates in Australia but has a very small market share and does not list the same securities as those trading on the ASX.

Macquarie Equities said securities exchanges facing competitive threats traded at a discount to the market and the ASX's earnings per share growth would be tempered in a competitive environment.

Of four possible competitors in the Australian market, not all were likely to survive, Macquarie analyst Deana Mitchell wrote in a client note on Wednesday.

"However, competition appears inevitable over the next 12 months and we believe will impact the rating of ASX," she said.

Hong Kong and Singapore enjoy monopoly positions and have retained their share price premium to the market, she added.

For retail investors, Chi-X's entry will mean better securities' prices, lower trading data fees and a more liquid market, Tamas Szabo, chief executive of contracts-for-difference (CFD) provider IGMarkets said.

"Traders will be able to shop around to find the cheapest prices and best liquidity offered by competing exchanges."

IGMarkets already allows CFD traders to view live prices across multiple UK and European exchanges and a hybrid price reflecting the best bid and offer prices.

IRESS Market Technology is developing a similar system.

IRESS executives were not available to comment.

Australia's largest online broker CommSec said Chi-X's entry would change the landscape for traders, but it could not comment further until it assesses the implications.

The ASX currently charges brokers a trading fee of 0.28 basis points per side of the trade, and retail users a monthly fee of $37.50 to access its data feed, one of the world's most expensive feeds.

The London Stock Exchange charges STG 1.00 per month for its data feed.

2010 AAP
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