John Fildes throws down gauntlet to ASX

Chi-X Australia’s incoming CEO accuses the incumbent bourse of imitation and says he is ready to provide what he sees as much-needed competition.
John Fildes throws down gauntlet to ASX

John Fildes, who has been named alternative trading venue Chi-X Australia's next chief executive, has laid down a strong challenge to Sydney-based stock exchange ASX.

He will start on May 1 as a successor to Peter Fowler, who is set to retire but will continue as CEO in the interim.

Fildes joins from market-making firm Getco, where he was Singapore-based director of strategic development for two-and-a-half years. Between August 2009 and June 2010, he was the Asia chief operating officer at agency broker Instinet, which like Chi-X is backed by Japanese bank Nomura.

Fildes tells AsianInvestor he has been involved in Chi-X’s entry to Australia since its early days. “I actually wrote the first business plan for Australia on the back of an envelope with a colleague of mine when I was at Instinet, so I’ve been involved in this thing one way or another for as long as anybody has.

“I believe Australia needs competition – competition is good – and that Chi-X can deliver huge returns to all investors in Australia, and I want to see that promise delivered on," he says. “The ASX has a massive ebit [operating] margin in excess of 75%. That shouldn’t exist in the real world in a competitive market place. Very few companies in the world have those ebit margins.”

The threat of competition from Chi-X saw Australia’s main bourse slash its trading costs by more than 45% in mid-2010 – even before the alternative trading platform was launched in October 2011.

Permitting competition to the primary exchange with the introduction of Chi-X necessitated a change in the law. This has afforded ASX the time to upgrade its technology and introduce initiatives to foster more efficient trading for multiple parties. These include launching dark trading books ASX Centre Point (for standard orders at mid-point) and Volume Match (for large block orders), as well as PureMatch, an order book primarily for high-frequency traders.

“If you look at the ASX, they have consistently copied all Chi-X innovation. They’ve got over 500 people working at the ASX, and there are 12 people at Chi-X – and the best the ASX can do is to copy Chi-X’s ideas.”

When ASX launched high-frequency trading platform PureMatch in November, it was seen as a direct competition for Chi-X, which launched on October 31 and had already gained 2% market share in less than a month of trading.

Chi-X may well launch other products and services, but Fildes declined to comment on what they might be.

Since its inception 18 months ago, the venue has built its Australian market share to 11% of daily equity turnover as at March 28.

A spokeswoman for ASX tells AsianInvestor that for the week ending March 29, 93.5% of on-market trading occurred on ASX.

Chi-X says it aims to reach the market share it enjoys in Europe, where some 25% of FTSE 100 trades were routed through Chi-X as of April 3, according to the company.

“In Europe, 10% was an inflection point,” says Fildes. “Once Chi-X hit 10% of the European market, its market share grew to 15%, then 20%, then 25% fairly quickly, and I think we would be looking to grow to those kind of levels in time.”

Chi-X Australia has yet to make a profit since its launch, and Fildes declined to disclose figures. However, he stresses that the firm’s Australia investors, with Nomura its largest shareholder, are taking a long-term view, focusing on making trades more efficient for all participants. “That doesn’t necessarily equate to short-term profits.”

A spokeswoman for ASX declined to comment on Fildes' claims. However, she states that ASX has 518 staff and that its cash-market trading – the business that competes directly with Chi-X – comprises just 5% of its total revenue.

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