By Shaun Drummond
Chi-X Australia says cuts in equities clearing fees of up to 60 per cent announced by ASX Ltd on Monday prove these fees have always been too high.
ASX has offered minimum fee cuts on the clearing of equities trades from July 1 of 14.2 per cent, which would reduce the exchange's revenue by $6.8 million a year if its present clearing monopoly is extended for five years.
Chi-X Australia chief executive John Fildes has called ASX share clearing cuts 'a very cynical move'.Credit: Glenn Hunt
"ASX is discussing a new, tiered clearing-fee structure which will apply to all customers in the event that the council recommends, and the government adopts, a five-year extension to the code of practice that ASX put in place in August 2013," the ASX said in a statement.
The announcement follows a report by The Australian Financial Review that the ASX had been offering brokers significant cuts on clearing to brokers if they back an extension to the ASX code of practice regime introduced during the moratorium on equities clearing.
ASX Ltd is offering to slash equities clearing fees for brokers if they back its monopoly on share trade clearing.Credit: Louie Douvis
"Based on the financial year 2015 year-to-date value cleared of $3.8 billion per day, the proposed fee schedule would provide a 14.2 per cent fee reduction to ASX's customers," the statement said.
If clients' clearing volumes doubled, the reduction could amount to a 35 per cent cut.
John Fildes, the chief executive of rival share-trading exchange Chi-X Australia, said it "was a very cynical move" by ASX two years after the moratorium on competition in equities clearing began.
"It is only when the review of the moratorium comes up that they offer cuts," he said. "So if they were able to offer these discounts why not two years ago?"
'Market lacks scale'
A spokesman for ASX said the two-year moratorium on clearing competition did not offer "enough scope" for fee cuts. He said the five-year period allowed ASX to continue to invest in its infrastructure and work more closely with its customers to share the benefits of market growth.
The current pricing is a flat fee of 0.0025 of a percentage point per trade cleared. However, under the proposal, clearances in value of up to $3 billion per day would face a fee of 0.00225 of a percentage point.
Trading between $3 billion and $4 billion a day would face 0.00175 of a percentage point; between $4 billion and $5 billion would face 0.00125 of a percentage point; and any value over $5 billion would face a fee of 0.001 of a percentage point, which is 60 per cent less than present levels.
UBS Australia chief Matthew Grounds backs the move. "It balances the reduction of fees with a firm and robust investment in clearing infrastructure which benefits the wider market," he said.
He also agrees with ASX chief Elmer Funke Kupper that Australia is not big enough to support a competing clearing house. "UBS believes the Australian market lacks the scale to provide an alternate clearer and one is unlikely to emerge in the medium term even if permitted by government and regulators," Grounds said.
The present moratorium on competition in equities clearing, combined with regular ASX consultation with clients under an ASX code of practice, was set to end in February but was extended while the Council of Financial Regulators (CFR) consults on whether to introduce competition.
Full competition costly
ASX argues that the present structure, with negotiated fee structures, is the most efficient for the small size of Australia's market. It said alternative structures proposed by the CFR, which include full competition in clearing or separation of clearing from ASX, would add between $20 million and $30 million a year in technology and regulatory costs.
The volume-based pricing cuts in equities clearing are similar to the fee reductions that ASX introduced to derivatives clearing in October. These are forecast to lead to a $17 million cut to its 2014-15 revenue.
The exchange said the clearance-fee pricing proposal would reduce its return on equity on clearing to about 10.8 per cent, from 12 per cent.
Mr Funke Kupper has repeatedly argued that clearing fees make up a tiny proportion of broker costs and benefits would accrue to the high-frequency trading arms of brokers, where small differences in trading and clearing costs can make a big difference to profit.
David Lawrence, chief operating officer of rival market operator Asia Pacific Stock Exchange (APX), argues there needs to be either full competition or some form of independence bestowed on the clearing operation of ASX.
"APX does not believe the code of practice adequately addresses the competition issues faced by other listing market operators," he said.
"ASX's commercial position is that the integrated value chain of trading, clearing and settlement allows it to provide efficiencies. However, other market operators who are reliant upon access to the ASX clearing and settlement facilities cannot leverage the efficiencies which ASX can obtain as an integrated market operator."