The study, authored by CMCRC chief executive Professor Michael Aitken, looked at how competition to the Australian equity market trading had affected market quality by estimating the benefits before and after the introduction of the platform Chi-X Australia.
“We looked at bid/ask spreads and found that quoted, realised and effective spreads had declined since Chi-X was introduced,” Professor Aitken stated.
“The more Chi-X volume goes up, the more these decline, which means that as Chi-X gains market share it becomes cheaper overall to trade equities. This has resulted in cost benefits for all investors, but particularly those trading the securities jointly traded on the ASX and Chi-X.”
In the report, the author estimated the cost savings from more competition in trading platforms and then compared these to the additional costs that competition, regulation and technology had imposed.
“We have heard a lot from the trading community about the extra tech and regulatory costs they have to bear now, so we were somewhat expecting our results to reflect that,” Professor Aitken said. “However, the results demonstrated unequivocally that the industry has saved money overall.”
However, the academic centre for capital market research said this study cannot be used to justify a massive expansion of trading platforms in Australia.
“We have the situation here where we have two primary markets and a number of dark pools, and this level of fragmentation is small compared to the United States, where there are over 300 different trading venues,” Professor Aitken pointed out.
“The benefits we find in this study are consistent with what we’d expect to see from the initial break-up of an effective monopoly. It should not be construed as advocating competition such as the United States experiences – that is a completely different scenario.”
Chi-X Australia is a subsidiary of Chi-X Global Holding and has been operating in Australia since October 2011.
