Competition Between Bourses: Chi-X Plans Derivatives Trading, ASX Offers Trading Fee Rebates

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By Vittorio Hernandez | November 30, 2012 10:47 AM EST

Competition between Australia's two major stock exchanges is becoming tougher as the Chi-X and ASX disclosed separately measures designed to snare a larger slice of the stock market amid a background of weak trading and poor investment sentiment.

Reports said that the Chi-X board is studying the possibility of offering derivatives trading if the regulators would agree in December to introduce competition in clearing services.

An assessment by the Australian Securities and Investments Commission (ASIC) published on Thursday said that Chi-X, which has secured 12 per cent of the equities trading volume, is actively considering its strategic options to expand its offerings.

To counter the growth of Chi-X, the Australian Stock Exchange (ASX) which logged a 7 per cent drop in equities trading revenue to $124 million in the year to June 30, the older bourse is offering rebates to stockbrokers on their trading fees beginning 2013.

While competition from Chi-X and off-market trading as well as declining market volumes were seen as the main reasons behind the lower equities trading volume of ASX, Elmer Funke Kupper, the chief executive of ASX, in a letter to brokers, said the offer of rebate also seeks to address weak overall trading conditions.

He pointed to rising costs, increased regulation and declining activity levels as creators of significant challenges to the current trading environment.

In June 2010, the ASX had set aside a similar revenue sharing scheme after it reduced its headline trading fees. An analyst from Deutsche Bank, quoted by the Australian Financial Review, estimated the ASX rebate would cost the bourse $400,000 on its 2013 financial year and $9 million the following year.

The ASIC granted Chi-X a trading license in May 2011 and said in its assessment that the new bourse met its statutory obligations until end of March 2012 and has agreed on nine areas for improvement or attention by Chi-X such as handling conflicts of interest, technological resources to operate the market, monitoring and enforcement of compliance and staffing.

Derivatives trading, which boosted ASX's revenue 9.6 per cent to $188.7 million on strong volumes, involve the buy and sell of financial instruments with values based on one or more underlying assets. The contract between the buyer and seller provides specific conditions such as dates, resulting values of underlying variables and notional amounts.

Besides the offer of rebate, the ASX has also recently launched its iPhone App designed to provide traders with updates on the Australian stock market in a bid to tap technology and attract younger and tech-savvy Aussies to the bourses.

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