The New Zealand Stock Exchange (NZX) is to wind up its planned alternative trading platform for Australia, known as AXE, as it fears the venture will not make money.
The decision to pull the plug on the project between the NZX and several banks and brokers before it had even been granted a licence has raised questions over whether the new platforms, known in Europe as multilateral trading facilities (MTFs), are as economically viable as once assumed given fierce competition and lower fees at incumbent exchanges – itself a response to the emergence of alternative platforms.
ASX, the established exchange in Australia, has pushed through a series of upgrades, fee cuts and new platform launches, including introducing a block trading facility after a change in regulations to allow competition. Chi-X Global became the first company to be granted a licence.
The platform, jointly-owned by NZX, Citigroup, Macquarie, Merrill Lynch, Goldman Sachs and Commonwealth Bank, was first established in 2006 and originally applied for a licence to operate in Australia the following year. Liquidnet, the US institutional broker, has also applied for a licence.
“After a review and careful assessment of the market today, AXE does not see opportunities for its business model to generate sustainable economic returns and shareholders have therefore agreed to cease operations of the legal entity,” the exchange said.
Yet fears over profitability of new trading platforms has not dissuaded rivals from entering other markets. Some have even converted into exchanges.
Earlier this week Burgundy, the Stockholm-based trading platform, was granted a licence to operate in Sweden, making it the country’s third exchange. The platform is owned by several of the biggest Nordic financial institutions and competes with Nasdaq OMX’s Nordic stock exchanges.