benchmarking asx’s post-trading services · helen ralston, senior consultant june 2014 . overview...
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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$13.6tn, 0.20bp)
Typical costs Post-trading fees and the relationship to size of the market
(value of trades)
June 2014 Strictly confidential 4
Note: Costs in basis points (bp).
Australia
Hong Kong
Singapore
Japan
Korea
Brazil
Canada Germany
France
UK (EuroCCP)
UK (LCH.Clearnet)
Spain
Switzerland
Denmark 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0 500 1,000 1,500 2,000 2,500 3,000 3,500
Post-
tradin
g f
ees (
bp)
Value of trading (AU$bn)
USA (AU$13.6tn, 0.03bp)
Typical costs—enlarged Post-trading services and the relationship to size of the market
(value of trades)
June 2014 Strictly confidential 5
Australia
Hong Kong
Korea
Canada
Germany
France
UK (EuroCCP)
UK (LCH.Clearnet)
Switzerland
Denmark
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800
Post-
tradin
g f
ees (
bp)
Value of trading (AU$bn) Note: Costs in bp.
Typical costs—enlarged Post-trading services and the relationship to size of the market
(number of trades)
June 2014 Strictly confidential 6
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$m) 0.06 0.40 0.07 0.40 0.005 0.015
Average number of stock
traded per year
1,000 1,500 5,000 15,000 100 3
Investor and intermediary profiles (I)
June 2014 Strictly confidential 8
Institutional:
small
Institutional:
mid
Institutional:
large
Retail: online Retail: advice
Average number of transactions per day 12,000 59,000 126,000 20,000 4,000
Average trade size (AU$) 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
June 2014 Strictly confidential
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)
June 2014 Strictly confidential 11
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)
June 2014 Strictly confidential 12
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
June 2014 Strictly confidential
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
June 2014 Strictly confidential 14
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
June 2014 Strictly confidential 15
Note: Costs in bp.
Profile analysis: CCP fees Institutional profiles
June 2014 Strictly confidential 16
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
June 2014 Strictly confidential 17
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
June 2014 Strictly confidential 18
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 1 Profile 2 Profile 3 Profile 4
Profile analysis: CSD fees Retail profiles
June 2014 Strictly confidential 19
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
Profile 5 Profile 6 Profile 7
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
June 2014 Strictly confidential 20
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
June 2014 Strictly confidential 21
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
June 2014 Strictly confidential 22
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
Profile 1 Profile 2 Profile 3 Profile 4
Estimate of
user cost
savings from
default fund
arrangements
Profile analysis: CCP fees with default fund
adjustment Institutional profiles
June 2014 Strictly confidential 23
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 5 Profile 6 Profile 7
Profile analysis: CCP fees with default fund
adjustment Retail profiles
June 2014 Strictly confidential 24
Note: Fees in bp.
Estimate of user
cost savings from
default fund
arrangements
June 2014 Strictly confidential
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
June 2014 Strictly confidential 26
profiles
actual customers
Legend
User profiles and customers’ actual experience Settlement fees
June 2014 Strictly confidential 27
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
June 2014 Strictly confidential 28
Contact: Helen Ralston Tel: +44 (0) 207 776 6623 email: [email protected]
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