ASX trading platforms – all you need to know about the new players
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Competition among ASX trading platforms has heated up in 2020 as new entrants chase market share.
Like most sectors, technology is influencing those changes. And it’s also creating segments as platforms chase different target markets with different product offerings.
One dynamic now in play is a ‘race to the bottom’ on fees, with the addition of platforms such as SuperHero which charges a brokerage fee of $5 per trade.
However, the model for lower-cost platforms is also based on a more limited feature set.
So different products are emerging for different market fits, depending on the consumer needs of each target market.
In assessing the market, a key differentiating feature that stands out is live pricing.
ASX trading platforms such as Commsec, CMC Markets and new entrant Marketech Focus provide live market pricing by incurring a cost to the ASX.
(A second – and cheaper – option is to obtain pricing data through competitor exchange Chi-X, although currently it has less than 20 per cent of the market).
Conversely, newer competitors such as SelfWealth and SuperHero provide prices on a 20-minute delay.
That low-cost approach means they avoid the data overheads. However, the feature set in their product offering is more limited.
Another point of differentiation is in the issuance of holder identification numbers (HIN).
Typically, brokerage firms issue a HIN to each individual trader when they sign up to the platform as a way to track and confirm trades made by each user.
The second option is to operate with a pooled HIN, where a nominated participant clears trades for every stock bought and sold by each customer on the platform.
A pooled HIN is cheaper for the broker because every trade under a single HIN only requires one settlement fee, as opposed to a settlement fee for each individual user.
But it’s also riskier, because customers who trade stocks under a pooled HIN don’t have full legal title to the shares they trade. That leaves them with less rights than shareholders with an individual HIN in the case of an unexpected event such as a corporate bankruptcy.
Among the low-cost market players, SelfWealth still sets up an individual HIN for each user while SuperHero operates with a pooled HIN.
Speaking with Stockhead, Marketech Focus CEO Travis Clark said the market for brokerage services in Australia can more or less be broken down in two halves.
On one side are full-service brokerage platforms catering to more experienced investors, and on the other are those providing a vehicle for new traders to enter the market.
As a platform, Marketech falls into the first category alongside competitors such as Commsec, CMC Markets, NAB Trade and Bell Direct.
On that front, a poll of Stockhead readers conducted last year indicated that Commsec still has an outsized share of the market.
But Clark says there’s an opportunity to compete in that market by shifting the data flow from ASX-connected servers to the cloud.
“For example, when I worked in full-service broking we used to have a heavy duty cable directly from the ASX to the server room,” Clark said.
“But if your platform is connected to a server, it makes it hard to process large amounts of data – particularly through a phone.”
“You could build a good web version but it’s going to be java based, which doesn’t translate to mobile.”
“So the question is around how to get information onto mobile without blowing it up in your ear, and the answer is cloud services.”
“Conceptually, it’s the same idea as video content in that you don’t necessarily want to download movies onto your phone, but it’s a lot easier to stream them.”
Looking at the broader market, Clark said he has some concerns about the rise of low-cost platforms to attract new traders – particularly around the lack of live pricing which effectively only provides an “estimate” of the execution price.
He pointed out that the race to the bottom in broker fees that has played out in the US with apps such as Robinhood ($0 brokerage) is limited in Australia, due to the cost of the input data – either from the ASX or Chi-X.
“The only way you can get super cheap in our market is to strip something out of your platform, otherwise you’ll be doing it at a loss,” Clark said.
And while local regulators have allowed low-cost competitors to enter, the long-awaited arrival of Robinhood into the Australian market has so far failed to materialise.
That’s partly reflective of differences in the US market, where part of Robinhood’s business model is based around on-selling customer trading data to high-frequency trading firms.
Such a model brings to mind the maxim applied to social media firms where “if you’re not paying for the product, you are the product”, Clark said.
However, within the local market the established platforms catering to experienced investors will be well-placed if volatility rises again.
“If you look over the last six months, really the only thing you had to do was to have bought stock,” Clark said.
“You almost could have bought anything, and in that environment people don’t know the importance of being able to monitor their shares and trading positions in real time.
“So we’re maintaining our market positioning towards the serious active investor. People who take the markets seriously and know they need to tools to do that.”