"We risk becoming the best informed society that has ever died of ignorance"
- Rubén Blades

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it"
- Art Buchwald

"It's getting exciting now, two and one-half. Think of everything we've accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium"
- Tyler Durden

"It is your corrupt we claim. It is your evil that will be sought by us. With every breath, we shall hunt them down."
- Boondock Saints

Sunday, November 20, 2011

CHI-X Trading Volume Swelling Early

Nanex "Acid Rain" Bot

From TheAustralian:

CHI-X's share of trading volumes has edged through 2 per cent for the first time, with brokers executing 13,202 trades worth $42.1 million on Friday afternoon as the ASX's new rival continues its slow expansion. 
Chi-X's share of daily turnover was 2.07 per cent.

Electronic market-maker GETCO emerged as the biggest trader on Chi-X on Thursday, pipping Deutsche Bank with a 28 per cent share compared with Deutsche's 27.9 per cent.

The emergence of Chicago-based GETCO will be no surprise to market observers.

Then-ASX boss Robert Elstone said at the exchange's annual result in August that Chi-X's entry would inevitably attract more high-frequency trade (HFT) business, which already accounted for 15 per cent to 25 per cent of local equity trades. Opinion is divided on the desirability of HFT.

Proponents point to the extra liquidity, and critics cite the role of computer-driven, algorithmic trading in the "flash crash" in May last year, when 1000 points, or 9 per cent, was wiped off US equities within a few minutes.

The ASX will join the battle with Chi-X for HFT business next Monday when its new high-speed trading platform PureMatch goes live for the most liquid ASX-listed stocks and domestic exchange-traded funds.

The fee structure is 0.15 basis points for both passive orders (where traders post shares for buying or selling) and aggressive orders (where investors take up an offer to buy or sell securities).

Chi-X's headline fees are cheaper, at 0.06 basis points for passive orders and 0.12 basis points for aggressive orders.

But the ASX will cut its passive order fee to 0.05 basis points for participants who reach certain volume thresholds. For the first three months, these thresholds will be set at zero to lure traders.

After a soft launch on October 31 with 22 brokers and eight securities, Chi-X expanded on November 9 to cover the top 200 stocks.
Reviews for the new world of competition in securities trading have been largely favourable.

Deutsche's director of electronic trading Ben Radclyffe said volumes had been "relatively small", but the launch had been untroubled and Chi-X would continue to grow its share.

In some stocks, Chi-X's market share was already above 5 per cent.

"People are still testing the waters, so the majority of the flow hasn't been turned on yet," Mr Radclyffe said.

"It's a case of liquidity begets liquidity, and Chi-X will continue to tweak things like its costing model and opening hours."

While Deutsche has used Chi-X for a mix of proprietary and client trading, and is one of the new exchange's biggest users, UBS has taken a more cautious approach.

Head of portfolio and algorithmic trading Steve Hammerton said UBS's share of Chi-X volumes was less than 1 per cent.

"We're using it for better prices, not (passive liquidity) and we'll continue to take that approach for a couple of weeks," he said.

"It's not a race and we're a client-focused business, so we won't experiment until we're 100 per cent-sure we'll get the right outcome."

Chi-X Australia has outperformed its Japanese counterpart, which took six months to achieve a similar market share, despite ownership links to Japanese securities house Nomura.

But in Japan the exchange operator began with only four participants instead of 22, and was hamstrung by a limitedlicence that prevented it from exceeding 10 per cent of the market.

The consensus here is that its share will settle in a range of 10 per cent to 15 per cent over the medium term.

Mr Radclyffe said Chi-X would be helped by a number of factors, including a natural "tipping point" for further expansion when its share lifted above 5 per cent.

On top of that, participants would be held to their "best execution" policies from March, and the 12-month grace period for institutional brokers to connect to Chi-X would expire in October.

Mr Hammerton said Chi-X's entry would expand the overall market, as well.

"I expect their share to increase and the total turnover of the market to be bigger than it would have been without them," he said.