Alternative trading platforms could carve up the monopoly of the Australian Securities Exchange (ASX) if bids to win new market licenses succeed.
ASIC is considering applications for licences from the AXE ECN (AXE) and US-based institutional broker Liquidnet that would introduce two electronic securities platforms into the Australian financial market.
The AXE ECN, formerly known as the Australian electronic communications network, is a joint venture between New Zealand Exchange and brokerage houses Citigroup, CommSec, Goldman Sachs JBWere, Macquarie Bank and Merrill Lynch.
Both would trade in ASX-listed securities but its method of doing so and the kind of trades would differ from that of the ASX.
Bear Stearns Securities Corp would provide Liquidnet’s clearing and settlement services.
ECNs are designed to be low cost, high speed platforms that separate listing from trading functions.
They are popular overeseas and competition between trading platforms is common in the United States and Europe.
“These applications represent a significant development in Australian securities markets,” ASIC chairman Tony D’Aloisio said.
“They raise policy issues that our regulatory regime has not dealt with before.”
In an ASIC-commissioned economic assessment of the bids, consultancy firm CRA International said the regulator needed to weigh up the upside and downside of introducing new platforms.
It said increased competition could undermine liquidity and result in inefficient pricing. It said in turn this could affect the viability of the alternative platforms.
“While competition between trading venues may foster innovation, improved services and lower trading costs, it can also undermine liquidity in existing exchanges and result in inefficient pricing outcomes,” CRA said.
However, the report also said increased competition could reduce or avoid monopoly mark-ups, especially in execution and indirect trading costs.
ASIC said it has not yet formed a view about the applications.
It will consult with the Australian Competition and Consumer Commission, which will take recommendations to the Parliamentary Secretary to the Treasurer Chris Pearce.
