Australian investors have realised up to $215 million in net benefits since the arrival of Chi-X on the nation's shores busted the natural monopoly enjoyed by the Australian Securities Exchange (ASX).
A study conducted by academic body, the Capital Markets Cooperative Research Centre (CMCRC), quantified the savings arising from reduced costs of trading and compared these to the additional costs competition had imposed, including increased spend on regulation and technology costs to connect to the new market.
The study's lead author, Michael Aitken, CEO of the CMCRC and professor of finance at UNSW, comments: "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. However the results demonstrated unequivocally that the industry has saved money overall, even taking into account Asic's cost recovery programme."
The paper examines market efficiency by estimating changes in transaction costs and price discovery. "We looked at bid/ask spreads and found that quoted, realised and effective spreads had declined since Chi-X was introduced. 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."
The study also reviewed price discovery mechanisms, and found that they also improved, with standard deviations of price over both the short and medium terms reduced.
In February, ASX won government approval to maintain its monopoly on the clearing and settlement of cash equity trades, dashing the ambitions of LCH.Clearnet to invade the territory.
Aitken believes a more competitive market for clearing and settlement would bring equivalent benefits to the local trading community, but feels that it is prudent to give the industry "some breathing space" given the magnitude of regulatory change already underway.