By Benjamin Phillips, Senior Director, Head of Product Development, Cboe Australia
As Cboe Australia celebrates its 13th year of operations as an Australian Market Operator, we reflect on the benefit competition has delivered to Australian investors and our ambitious roadmap for the future.
From humble beginnings, through competition and innovation we now capture approximately 20% of the total market value traded in Australia. Contrary to popular belief, our success stems not from large-scale or high-frequency trading, but from a diverse client base. Our focus has been on market enhancements that result in better trade execution outcomes for all market investors. This has led to strong retail participation and investor activity within our integrated central limit order book first. This means Cboe Australia observes higher retail trade execution, as a percentage of exchange turnover value, on Cboe Australia than the ASX.
During our Chi-X years we delivered groundbreaking solutions for Australian investors such as:
- Integrated central limit order book – delivering price improvement opportunities for all orders entering Cboe, simplifying multimarket and dark/lit trade operations for Participant technology teams.
- Market-on-close – Allows Participants to trade anonymously throughout the day from 10:00 to 16:20 with assurance of the ASX closing auction price and free of trading fees.
- Sophisticated Self-match-prevention optionality – enhancing investor experience by offering greater choice for self-determined outcomes.
- Broker preferencing providing ‘Price / Visibility (Lit then Dark) / Broker / Time’ priority for hidden (pegged) order trading to suit broker strategies.
- Key market micro-structure features including benefits of shorter order queues and more deterministic response times thus improving potential execution outcomes.
These first ten years provide clear evidence of how competition drives market innovation, not just better price outcomes. However, while we are on the topic it is relevant to note, this has been delivered at a per trade execution cost that is at least 40% lower than our competitor and more meaningfully 68% lower than in the pre-competition era. Additionally, competition has resulted in dramatically reduced Trade Report costs by many orders of magnitude.
Since our integration into Cboe Global Markets in 2021 we’ve embarked on a new era of innovation. Our swift migration to the Cboe Tech matching engine (Cboe Tech) took just 13 months, with great engagement from our client base to ensure the migration’s success. This achievement highlights our approach to market engagement, development and testing efficiency, and respect for our Participants and broader stakeholders resource commitments.
Now powered by Cboe Tech across the APAC region we are focused on bringing global standard enhancements to the Australian market that are fit for local purpose. In the years since the Cboe acquisition we have delivered the following market innovations:
- Cryptocurrency ETFs – while cryptocurrency ETFs have enjoyed increasing availability in global markets, Cboe was the first Australian exchange to gain regulatory approval to list cryptocurrency ETFs. Since May 2022, Cboe Australia has facilitated spot Bitcoin and Ethereum exposure through an ETF wrapper, establishing itself as a market leader with three crypto ETFs currently listed for trading on its market.
- Post-only order type – provides the surety of lit orders resting on entry, thus supporting the tightening of the Cboe Australia lit spread, enhancing retail investor trade execution outcomes.
- Cboe Connect – simplifying Participant physical connectivity to Australia’s cash markets through cost effective and highly performant and resilient channels.
- Corporate Listings – Bringing Cboe Australia’s ethos of competition to drive innovation for listed companies and Australian investors. This initiative aims to knit together Cboe Global Markets’ venues under a focused set of listing rules that provide a framework to remove unnecessary barriers for listed companies accessing liquidity across borders.
In addition to these we’ve made a number of key technical enhancements, securing the resilience and integrity of our infrastructure and helping to maintain our continued platform uptime metric of 100% in the last ten years. While largely unseen, these deliverables are meaningful. Some recently observable outcomes of these enhancements include:
- 10% decrease in order-to-quote latency (66us to 60us) with further performance upgrades to reduce market data latency to be realised later in Q3 2024.
- Message-in-flight protection deployed (July 2024) to prevent outlier scenarios of excessive message traffic from impacting the reliability of the platform, further supporting a safe, orderly, and transparent market.
Looking towards the future we held our first annual “Tech Summit” in late August. We engaged with a broad set of key market stakeholders to outline the development agenda for Cboe Australia into 2025 and beyond. This session outlined key deliveries[1]:
- Amend Port functionality – Hearing Participant feedback we are re-implementing new “Amend Port” functionality within Cboe Tech to facilitate amending orders across your trading firm regardless of which application entered the order. This feature is not previously available in our global code base, however we have been able to include this functionality to suit Australian market requirements.
- Enhanced order types – Improving execution opportunities for retail investors, including:
- the introduction of Timed Immediate Or Cancel (Timed IOC) orders, allowing greater investor opportunity to interact with Cboe liquidity; and
- Multi-Day orders (including Good-Till-Cancelled (GTC) and Good-Till-Date (GTD), support resting order strategies across many participants.
- Auctions – As we introduce our own ‘Cboe Listed’ equities product and to support better price discovery for Cboe funds we are introducing opening, intra-day and closing auctions. While limited to Cboe listed products only, we are engaging with SIAA (and others) to understand if or how this mechanism could be broadened in the future.
Key to Cboe Australia’s advantage is our agile approach to software development and deployment of new features and functionality. New code is released weekly to all Cboe markets globally and is how Cboe Australia can release new product rapidly for clients to integrate. However, we understand that our stakeholders may have differing demands, priorities and approaches to testing and deployment. As such we take an ‘optionality first’ approach in our development to decouple the exchange rollout schedule from the client uptake schedule where feasible.
Examples include:
- FIX protocols innately allow clients to process or ignore tags as required.
- BOE (binary order entry) protocols now facilitate old plus new versions of relevant messages (until the sunset of the old version), to allow clients to upgrade to new functionality to their own schedule, and importantly, rollback independently if required.
However, there are times where mandatory changes require adoption by all Participants at the same time. We remain open to suggestions about further initiatives in this area.
In all cases we aim to provide upgrade roadmap and specification materials well in advance of the calendar year via the Cboe Tech Summit and Roadmap discussion.
In conclusion we thank you for your support across the history of Cboe Australia and its innovations. We look forward to working with you to continue innovating for Australia’s capital markets and its investors.
©2024 Cboe Australia Pty Ltd (ACN 129 584 667) (“Cboe Australia”). All rights reserved. Cboe is a registered trademark.
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[1] Subject to regulatory non-objection/ approval.