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Chi-X Australia
Chi-X Australia, owned by Chi-X Global which also operates Chi-X Canada and Chi-X Japan, had launched in Australia on 31st Oct 2011 to provide secondary market trading services and became the first competitor of Australian Securities Exchange in equities trading. The secondary market as capital market that allows investors to trade securities, is aimed to minimise transaction costs and offer clearing and settlement facilities to achieve market transparency.

Background and history


When Chi-X Australia started in 2011, there were only eight securities which include two ETFs and six stocks traded in this new exchange. After 7 years of operation in Australia market, Chi-X provides around 2,200 listed companies and ETFs to its 47 trading participants which include big four banks’ broking firms such as CommSec, Nabtrade, Westpac Online, and ANZ Share Investing. In response, ASX Equity Markets general manager Richard Murphy answered ASX Investor’s questions about this exchange competition in February 2012.

According to Mr. Murphy’s reply, as Australia’s premier trading market provides listing, trading, clearing and settlement services to a wide range of market users. Chi-X as a trading venue compete with ASX in providing listing and trading service, at the same time is a client of ASX in using its clearing and settlement services.

In the first quarter of 2018, 79.8% of total turnover in equity market products traded in ASX and 20.2% traded in Chi-X, which include all trades executed on order book. The quarter turnover daily average around $6.1 billion and overall order-to-trade ration is 7.0:1.

Competition in Australia equity trading market
According to Australian Competition and Consumer Law s2, competitive markets are preferred for its efficiency in allocating resources as well as increase consumers’ welfare through fair trading. Adam Smith in his book The Wealth of Nations discovered that regardless of the intention of individual traders, their commercial activities in general are promoting public interest.

Effects of competition in high-frequency trading: it could benefit the market with ‘higher trading volumes and tighter bid/offer prices’ at the same time lower trade size insecurities could impact the quality of the market.

ASX reduced trading fees, upgraded trading technology, offered new facilities and platform when facing challenges from Chi-X.

ASIC and Chi-X
In order to ensure Australian trading companies and investors can benefit from competition in the Australian financial market and trade ASX-listed securities on more than one trading venue in a multi-market environment, ASIC introduced Market Integrity Rules (Competition in Exchange Markets) 2011 on 29 April 2011 and approved Chi-X’s application to provide secondary market trading services in Australian market on 4 May 2011, they both came into effect on 31 October 2011. Those rules require market participants to act in the best interests of their clients which include choosing venue like ASX and Chi-X to execute their orders, therefore those end-users such as retail investors don’t have to know much about the change.

Changes in financial market and their Impacts on Australian financial investors
More and more opportunities have been discovered with implementing new technology in the financial market such as building alternative trading systems which allow high-frequency traders to trade against pre-trade transparent orders. Competition between trading venues helps to reduce transaction cost, however, it challenges market transparency, liquidity, and discovery of price. There are principles to regulate direct electronic market identified by IOSCO in 2009 include needs for binding contract between the intermediary and direct market customer and their responsibilities.

High-speed trading
High-speed/frequency trading (HFT) has been seen as traders use fast trading systems such as supercomputers to trade stocks in microseconds and ‘skimming profits’ from institutional and retail investors who invested in companies and the real economy. Retail investors facing more harm as they are trading more frequently than institutional investors so can easily be targeted by HFT, and when they are trading shares, HFT will forcing up the price then quickly selling to take profit away from them. ASX and Chi-X as two major stock exchanges might create an arbitrage opportunity for HFT.Chi-X shares retail trading orders with ASX, offering better prices and fees but also has a high prevalence of high-frequency traders.

Dark pool
A dark pool is the venue that allows dark trading such as privately buy and sell orders for securities. It has advantages such as: allows investors to trade large volume of securities without disclosing to the public so the value of the offer can be preserved; investors can also trade in small size to avoid leaking their purpose of trading. ASX and Chi-X both run some dark pools aside with other trading venues in Australia market, the competition helps to decrease surcharges and create an opportunity for innovation to better fit their clients’ need. Dark pool influences the market from the following aspect: price formation; volatile prices; conflicts of interest; fairness and investor confidence; liquidity. ASIC as regulator introduced new market integrity laws in order to regulate dark pool.