benchmarking asx’s post-trading services · helen ralston, senior consultant june 2014 . overview...

Benchmarking ASX’s post-trading services Cash equity markets

Fod Barnes, Partner

Helen Ralston, Senior Consultant

June 2014

Overview

• High-level results

• Methodology

• Detailed results

• Service comparison

• Revenue analysis

June 2014 2

Typical costs Total trading and post-trading fees and the relationship to size of

the market (value of trades)

June 2014 Strictly confidential 3

Australia

Hong Kong

Singapore

Japan

Korea

Brazil

Canada Germany

France

UK (EuroCCP)

UK (LCH.Clearnet)

Spain

Switzerland

Denmark

0

1

2

3

4

5

6

0 500 1,000 1,500 2,000 2,500 3,000 3,500

Tra

din

g a

nd p

ost-

tradin

g f

ees (

bp)

Value of trading (AU$bn)

USA (AU$13.6tn, 0.20bp)

Typical costs Post-trading fees and the relationship to size of the market

(value of trades)


Note: Costs in basis points (bp).

Australia

Hong Kong

Singapore

Japan

Korea

Brazil

Canada Germany

France

UK (EuroCCP)

UK (LCH.Clearnet)

Spain

Switzerland

Denmark 0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0 500 1,000 1,500 2,000 2,500 3,000 3,500

Post-

tradin

g f

ees (

bp)

Value of trading (AU$bn)

USA (AU$13.6tn, 0.03bp)

Typical costs—enlarged Post-trading services and the relationship to size of the market

(value of trades)


Australia

Hong Kong

Korea

Canada

Germany

France

UK (EuroCCP)

UK (LCH.Clearnet)

Switzerland

Denmark

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800

Post-

tradin

g f

ees (

bp)

Value of trading (AU$bn) Note: Costs in bp.

Typical costs—enlarged Post-trading services and the relationship to size of the market

(number of trades)


Australia

Hong Kong

Canada Germany

France

UK (EuroCCP)

UK (LCH.Clearnet)

Switzerland

Denmark

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0 50 100 150 200 250

Post-

tradin

g f

ees (

bp)

Number of trades (m) Note: Costs in bp.

June 2014 Strictly confidential

Methodology

• comparison of the costs of post-trading services provided by FMIs in

14 different-sized financial centres

• ‘user-profile’ approach

• seven user profiles: 4 institutional and 3 retail

• represent a diverse range of investors and intermediaries active in the Australian

cash equity market

• objective is comparisons between FMIs, not between user profiles

• informed by ASX aggregate and participant-level data and discussions with local

brokers

• reviewed by Business Committee

• cross-checks

• sensitivity analysis and ‘local’ user profiles applied where relevant

• service comparison

• financial metrics

7

Small hedge

fund manager

Large hedge

fund manager

Small long-

only fund

manager

Large long-

only fund

manager

Frequent retail

investor

Infrequent

retail investor

Value of equities under

management (AU$m)

30 300 200 10,000 0.10 0.25

Total value traded per year

(AU$m)

60 600 350 6,000 0.5 0.045

Average order size (AU$m) 0.06 0.40 0.07 0.40 0.005 0.015

Average number of stock

traded per year

1,000 1,500 5,000 15,000 100 3

Investor and intermediary profiles (I)


Institutional:

small

Institutional:

mid

Institutional:

large

Retail: online Retail: advice

Average number of transactions per day 12,000 59,000 126,000 20,000 4,000

Average trade size (AU$) 5,000 5,000 5,000 5,000 7,000

Average value of custodian account (CSD

level—total) (AU$m) 1,000 12,000 52,000 20,000 15,000

Average number of settlement instructions

per day 1,000 1,000 1,000 1,000 500

Investors

Intermediaries

Investor and intermediary profiles (II)

June 2014 9

Profile 1 Profile 2 Profile 3 Profile 4 Profile 5 Profile 6 Profile 7

Investor type Small hedge

fund manager

Large hedge

fund manager

Small long-only

fund manager

Large long-only

fund manager

Frequent

retail

Infrequent

retail

Infrequent

retail

Intermediary

type

Institutional:

small

Institutional:

mid

Institutional:

mid

Institutional:

large Retail: online Retail: advice Retail: online

Estimated

annual post-

trading cost at

ASX (A$)

3,300 17,200 16,400 168,400 100 4 4

Profiles

Revenues from ASX’s clearing and settlement services in the cash equity market

totalled A$42m and A$40m in FY2013


Detailed results (I) Overview

• in most financial centres, retail investors pay more (in bp) for their

post-trading services (and trading services) than institutional investors

• there are some differences in the relative position of ASX across the

user profiles:

• for institutional investors, ASX is clustered around the midpoint

• for frequent retail investors, ASX is towards the higher end

• for infrequent retail investors, ASX is towards the lower end

10

Profile analysis: post-trading fees Institutional investors (chart truncated at 2bp)


Note: Fees in bp.

- 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

Kore

a

US

A

Denm

ark

Ca

na

da

Germ

any

Austr

alia

UK

(E

uro

CC

P)

UK

(LC

H.C

lea

rne

t)

Hong

Kon

g

Ja

pa

n

Fra

nce

Sw

itze

rla

nd

Bra

zil

Sin

ga

po

re

Spa

in

Small hedge fund: small intermediaries

- 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

US

A

Kore

a

UK

(E

uro

CC

P)

UK

(LC

H.C

lea

rne

t)

Denm

ark

Germ

any

Austr

alia

Ja

pa

n

Fra

nce

Hong

Kon

g

Ca

na

da

Sw

itze

rla

nd

Bra

zil

Sin

ga

po

re

Spa

in

Large long-only fund manager: large intermediaries

- 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Kore

a

US

A

Ho

ng

Kon

g

Austr

alia

UK

(E

uro

CC

P)

UK

(L

CH

.Cle

arn

et)

Germ

any

De

nm

ark

Ja

pa

n

Cana

da

Fra

nce

Sw

itze

rla

nd

Sin

ga

po

re

Bra

zil

Spa

in

Infrequent retail investor: retail advice broker

Profile analysis: post-trading fees Retail investors (chart truncated at 5bp)


Note: Fees in bp.

- 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Kore

a

US

A

Ja

pa

n

Cana

da

Denm

ark

Germ

any

Hong

Kon

g

Sw

itze

rla

nd

UK

(E

uro

CC

P)

UK

(LC

H.C

lea

rne

t)

Austr

alia

Fra

nce

Bra

zil

Sin

ga

po

re

Spa

in

Frequent retail investor: retail online broker


Detailed results (II) CCP and CSD fees disaggregated

• where comparisons can be made separately for clearing and settlement

services, clearing fees in Australia are at the high end of its peer group

• owing to bundling, disaggregated analysis is possible for CCPs and

CSDs in 9 financial centres only

• the cost of using ASX’s post-trading services is lower than in 4 of the

5 excluded financial centres (Hong Kong, Singapore, Brazil and

Spain)

• taking into account the differences in the default waterfalls moves ASX

nearer to the middle of the peer group

13

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

US

A

De

nm

ark

UK

(E

uro

CC

P)

Ge

rma

ny

Ca

na

da

UK

(LC

H.C

lea

rne

t)

Au

str

alia

Ja

pa

n

Fra

nce

Sw

itze

rla

nd

Profile 4: large long-only fund manager using large intermediaries

Profile 3: small long-only fund manager using medium-sized intermediaries

Profile 2: large hedge fund using medium-sized intermediaries

Profile 1: small hedge fund using small intermediaries

Profile analysis: CCP–CSD costs Institutional investors


Note: Costs in bp.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

US

A

UK

(E

uro

CC

P)

Au

str

alia

Germ

any

UK

(L

CH

.Cle

arn

et)

De

nm

ark

Ja

pa

n

Fra

nce

Ca

na

da

Sw

itze

rla

nd

Profile 5: frequent retail investor using an online retail broker

Profile 6: infrequent retail investor using a retail advice broker

Profile 7: infrequent retail investor using an online retail broker

Profile analysis: CCP–CSD costs Retail investors


Note: Costs in bp.

Profile analysis: CCP fees Institutional profiles


Note: Fees in bp.

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

US

AA

$13.6

tn

Ca

nad

aA

$1.3

tn

UK

(E

uro

CC

P)

A$

0.7

tn

De

nm

ark

A$

0.6

tn

Sw

itzerla

nd

A$

0.6

tn

Ge

rma

ny

A$

1.3

tn

Fra

nce

A$

0.9

tn

Jap

an

A$

3.1

tn

UK

(LC

H.C

learn

et)

A$

1.2

tn

Au

str

alia

A$

0.9

tn

Profile 1 Profile 2 Profile 3 Profile 4

Profile analysis: CCP fees Retail profiles


Note: Fees in bp.

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

US

AA

$13.6

tn

Ca

nad

aA

$1.3

tn

De

nm

ark

A$

0.6

tn

UK

(E

uro

CC

P)

A$

0.7

tn

Jap

an

A$

3.1

tn

Fra

nce

A$

0.9

tn

Sw

itzerla

nd

A$

0.6

tn

Ge

rma

ny

A$

1.3

tn

Au

str

alia

A$

0.9

tn

UK

(LC

H.C

learn

et)

A$

1.2

tn

Profile 5 Profile 6 Profile 7

Profile analysis: CSD fees Institutional profiles


Note: Fees in bp.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

US

AA

$13.6

tn

Au

str

alia

A$

0.9

tn

De

nm

ark

A$

0.6

tn

Ge

rma

ny

A$

1.3

tn

UK

(L

CH

.Cle

arn

et)

A$

1.2

tn

UK

(E

uro

CC

P)

A$

0.7

tn

Jap

an

A$

3.1

tn

Ca

nad

aA

$1.3

tn

Fra

nce

A$

0.9

tn

Sw

itzerla

nd

A$

0.6

tn


Profile analysis: CSD fees Retail profiles


Note: Fees in bp.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

US

AA

$13.6

tn

Au

str

alia

A$

0.9

tn

UK

(LC

H.C

learn

et)

A$

1.2

tn

Ge

rma

ny

A$

1.3

tn

UK

(E

uro

CC

P)

A$

0.7

tn

De

nm

ark

A$

0.6

tn

Jap

an

A$

3.1

tn

Fra

nce

A$

0.9

tn

Ca

nad

aA

$1.3

tn

Sw

itzerla

nd

A$

0.6

tn


Service comparison (I)

• identified a number of potential differences, not all have a material

impact on users’ costs:

• existence of CCP

• none in Spain

• timing of novation

• Canada novates late on, so less risk protection

• margining and treatment of client collateral

• international standards for margining suggest similar requirements

across CCPs

• differences in interest payments likely to be small


Service comparison (II)

• netting efficiency

• netting efficiency at the market level is driven predominately by

customer characteristics

• type of accounts at the CSD

• direct settlement to end-investor can increase costs at the CSD

relative to omnibus CSDs, if the omnibus CSD nets institutional

transactions

• funding of default waterfall


Service comparison (III) Funding the default waterfall

• ASX takes on the risk of funding the default fund

• in other CCPs this typically is funded directly by clients, who then take

on this risk

• represents a shift of costs from clients to ASX: what is the value to

clients of this change?

• reflecting the risk of contributions made to the default fund, the cost is

estimated as the average cost of debt for Australian clearing

participants

• proxied by the cost of A-rated commercial paper

• results in approximately 0.04–0.07bp of ‘savings’ to clients

• a conservative estimate


0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

US

A

Ca

na

da

UK

(E

uro

CC

P)

De

nm

ark

Sw

itze

rla

nd

Ge

rma

ny

Fra

nce

Ja

pa

n

UK

(LC

H.C

lea

rne

t)

Au

str

alia


Estimate of

user cost

savings from

default fund

arrangements

Profile analysis: CCP fees with default fund

adjustment Institutional profiles


Note: Fees in bp.

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

US

A

Ca

na

da

De

nm

ark

UK

(E

uro

CC

P)

Ja

pa

n

Fra

nce

Sw

itze

rla

nd

Ge

rma

ny

Au

str

alia

UK

(L

CH

.Cle

arn

et)


Profile analysis: CCP fees with default fund

adjustment Retail profiles


Note: Fees in bp.

Estimate of user

cost savings from

default fund

arrangements


User profiles and customers’ actual experience Summary

• the cost estimates for ASX are consistent with fees paid by ASX’s

actual customers

25

0.230

0.232

0.234

0.236

0.238

0.240

0.242

0.244

0.246

0.248

Average clearing

fee (0.238bp)

User profiles and customers’ actual experience Clearing fees


profiles

actual customers

Legend

User profiles and customers’ actual experience Settlement fees


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

Average settlement

fee (0.20bp)

Conclusions

• given the size of the market, ASX’s prices are in line with its peer group

• at the post-trading level and at the combined trading and post-trading level

• tariff structure differences cause differing results for different user profiles

• ASX is generally close to/within its peer group

• disaggregation by service produces more variation

• CCP services—at the higher end of the group; CSD services—at the lower

end of the group

• service comparison suggests the contribution to the default waterfall by ASX

Clear provides more risk protection than other CCPs

• results in a cost saving of ~0.04–0.07bp to clients, and would move ASX

closer to the middle of the peer group


Contact: Helen Ralston Tel: +44 (0) 207 776 6623 email: [email protected]

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benchmarking asx’s post-trading services · helen ralston, senior consultant june 2014 . overview...

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