Clearing and Settlement of Cash Equities in Australia

International Cost Comparisons

Ahead of implementation of the Code of Practice for Clearing and Settlement of Cash Equities in Australia (the Code), ASX commissioned Oxera Consulting (a UK-based independent economic consultancy firm) to update the analysis which was presented in the Council of Financial Regulators (CFR) December 2012 report “Competition in Clearing Australian Cash Equities: Conclusions.”

Oxera is an acknowledged expert in this area having previously prepared reports using the same methodology for Euroclear (2010), the European Commission (2011) and the Brazilian Securities and Exchange Commission (2012).

The trading and post-trading costs from 17 venues in 14 financial centres were calculated. Oxera chose the sample to include larger financial centres (eg US, UK), several centres that share similar equity market characteristics with Australia (eg Germany, Brazil, Italy) as well as other regional markets.

Oxera’s earlier analysis published by CFR in its December 2012 report has been updated using international pricing schedules from early 2013 and by incorporating user/intermediary profiles that are more representative of the Australian market.

The results

The relative cost across 17 venues in 14 financial centres in the updated analysis was not significantly different to that presented in the December 2012 CFR report.

The chart below plots the relative trading and post-trading costs of institutional investors using large broker intermediaries.  Given the strong economies of scale associated with providing such services, the costs are plotted against a measure of market size.

The updated analysis largely confirms the findings set out in the December 2012 CFR report, which indicated that ASX’s fees are broadly comparable to those of other markets of a similar scale.

Profile: Institutional Investors using Large Intermediaries

Source: The Oxera Trading and Post-Trading Monitor.
Note: For each of the financial centres considered, the value of EOB trading on the relevant trading venue during the 12-month period ending January 2013 (the latest available period for which data is consistently available) is reported. To increase the scale of the chart, Argentina has been excluded where costs of 9bps are much higher than the other financial centres considered. For a similar reason, the USA has been excluded, in this case because the value of EOB trading on NYSE is much higher than the other financial centres considered.

The note prepared for ASX by Oxera providing detail on the methodology used and the results of the analysis can be viewed here.

2014 international comparison

In the Code, ASX commits to annually commission from an independent consulting firm an international cost comparison of clearing and settlement services.  ASX has also committed to consult the advisory forum (the Forum) established under the Code on the scope and methodology of the international cost comparison prior it being commissioned.