Not quite final approval

Competition in the Australian equity market moved a little closer with yesterday’s announcement of Chi-X being granted a full securities trading license. It has been a long battle to open up this market. The story started way back in 2006 when I was working at the New Zealand Exchange (NZX) and we put together a consortium of the exchange and 5 investment banks to attempt to launch an ECN for institutional investors. Liquidnet made a similar application soon after.

Australia is a country where the granting of exchange licenses is highly political. The lobbying ability of the ASX to fight off such challenges was strong, with it citing the usual stories about the damage to the market the resulting fragmentation would cause.  These early applications were not helped by a change of government in 2007 (restarting the political discussions) and the financial crisis in 2008. The NZX initiative did not survive the delay.

However, despite the FT headline yesterday saying that ‘Chi-X gets final approval for Australia launch’, it does not mean it will actually launch on time. The approval is conditional on clearing and settlement being sorted out. In Australia, the only option for that is the ASX owned ASX Clear and CHESS, which gives the ASX some options for more delay if they so desire. There will certainly be some interesting discussions between the parties over the next few months!