What does the CBOE’s purchase of Chi-X mean for Australia?

Many Australian’s may never had known there were two major stock exchanges that represent the Australian market. While the ASX has enjoyed a monopoly for decades, Chi-X is the younger brother, competing for a lucrative slice of the Asia pacific market.

The Chicago Board of Options Exchange (CBOE) is an American company, renowned for providing highly competitive and efficient derivative exchanges across the world. For CBOE to buy in to Chi-X represents a monumental shift in the Australian exchange landscape.

The introduction of CBOE’s derivative expertise into the Australian markets shows Chi-X’s future is expanding to derivative markets. Australia currently has a select number of market makers in the derivative marketplace (under the ASX), each of which have liquidity mandates to reach, in order to receive hefty discounts. Such oligopoly has allowed for price mismatching and arbitrage scenarios, leaving retail and institutional option traders to pay the “fee”. CBOE has the ability to make Australian derivative markets more competitive by:

· Increasing the number of market makers

· Increasing liquidity

· Increasing trading features

In a statement made earlier this year, CBOE will look to expand into the Asia market and provide services such as their BIDS trading system, which utilises its block trading platform. In addition to new features, multiple leading exchanges may lead to an increase in IPO’s, as private companies are lured by intense competition.

We can expect CBOE to innovate and disrupt the ASX, bringing in more competitive pricing and new features to Australian investors. Much like the rivalry between NASDAQ and NYSE, we soon may see similar battle between CBOE and the ASX.