Australia should have access to multiple stock market operators, according to Instinet Pacific Services managing director John Fildes.
Australian investors are missing out on product innovation and efficiency because the Australian Securities Exchange (ASX) is the sole market exchange.
Research from the firm showed multilateral trading facilities (MTF) operating in European markets had delivered cost savings for investors.
Instinet's MTF saved its clients 5.08 basis points in management fees.
In November 2007, the European Union through its Markets in Financial Instruments Directive allowed MTFs to operate in conjunction with other European exchanges in a bid to promote competition.
Fildes said the Australian government should also consider other exchanges to operate in competition with the ASX.
The firm's sister company, Chi-X, has plans to enter the Australian market and compete with the ASX, however, the government is still considering the granting of licences.
It follows similar moves by other global exchange traders, including AXE and Liquidnet.
Liquidnet is already established in Australia, however, it only directs trades through the ASX, setting it apart from AXE and Chi-X, which intend to compete directly with the ASX.
"Competition allows for greater liquidity and product innovation in a market, which ultimately leads to lower costs for investors," Fildes said.
"The ASX is an archaic inefficient platform with rules that have been established two centuries ago. The Australian government has effectively allowed for a statutory monopoly to operate."
In September, Financial Services Minister Chris Bowen announced that market supervision powers under the ASX would move under the control of ASIC.
The move came in part because the government felt it could oversee the regulation of the ASX, thereby allowing competitors of the ASX to enter the market.
"We do have a number of applications before us for competition to the stock exchange [ASX] and it would not be possible to consider those on their merits while you have the ASX doing its own supervision," Bowen said at the time.
The Investment and Financial Services Association (IFSA) supports the move for greater competition in market services.
"The existence of regulated alternative trading and reporting platforms will allow market participants to effect trades in a more efficient and effective manner," IFSA deputy chief executive John O'Shaughnessy said.
