It is also interesting to look at how the competing exchanges fared with these changes. Again using Telstra we have taken a snapshot of trading for the month leading up to the rule change in May 2013 and then compared it with a year later. Below is the breakdown of all TLS.ASX trades for the months of April 2013 and April 2014.
From the earlier chart we could see that the number of crossings dropped off a cliff and the same is evident here. The proportion of trades executed as an NX crossing in April 2014 is far less than a year before. Successfully for ASIC some volume has returned to the lit order books – or what we refer to as the Central Limit Order Book (CLOB). The same goes for other types of trades that have all increased to the detriment of the NX crossings. ASX Centre Point continues to grow and the same for Chi-X’s integrated order book that offers automatic price improvement (marked as HL for Hidden Liquidity).
Accessing the order books
Whilst a lot of the focus for the sell side in Australia has been regulatory change there has been a whole lot of exchange innovation thrown into the mix – a common theme seen throughout the world where incumbent exchanges are competing to protect their market share whilst new entrants are doing everything they can to take it from them.
These innovation changes typically appear as either new order types or even new liquidity pools and venues. Today there is plenty of choice when it comes to where and how to send an order to market albeit in an overall diminishing pool of liquidity.
In Australia not so long ago the available order types were straightforward and looked something like the table below:
Compare that to today where we have competition across exchanges and all of a sudden there are many more choices on how and where to create an order:
These order types all have specific uses and target certain types of liquidity. All in all it is quite a complex suite of tools available to the trader. Pardon the pun but where is the limit to just how many the market needs? Some of these are direct responses to a competitor’s product, others are innovations designed to fill a gap in the existing offering. Unfortunately not all are well received nor well used by the sell side. One cannot blame the exchanges when looking at this from a competitive and evolutionary point of view but in hindsight when all involved are time and resource constrained most would agree that we need to be spending our time and resources on the most important issues at that time.
Ability to change
Likewise the topic of over regulation is often discussed and it is prevalent here in Australia right now. It not only encompasses just how far regulatory controls extend into a market but also and importantly just how quickly the market can absorb and deal with the changes. Sell side brokers continue to cut costs out of their businesses and dealing with regulatory and exchange change has always been a cost of doing business in this industry. But as the regulatory burden increased we have seen some of the ASIC changes in Australia delayed a number of times and some eventually abandoned. This in part can be attributed to the industry’s ability to meet the requirement within the specified time. As trading technology deployments get more complex it takes more time and money to change them.
Perhaps all of this highlights that we need a better way to move forward in the future. Sell side, buy side, exchanges, regulators and vendors all need an efficient way to collectively move forward. There is no doubt that each has their own agenda or clients to service but we all operate in the same space. Finding the best way to jointly progress as an industry in a world where cost pressures continue as trading volumes remain supressed might just be the challenge for the next year ahead.
Measuring Change To Find A New Path
