JSE Equity Market Billing JSE Member Communication - 24 May 2013

Transcription

1 1 JSE Equity Market Billing JSE Member Communication - 24 May 2013

2 Agenda Recap scope of Equity Market Billing Model Review initiative Process to date for revising the equity market trading fee billing model Trading Fee Billing Model proposal to discuss and consult with members on 2

3 Recap Scope of Equity Market Billing Model Review There are 4 core charges in the Equity Market Membership fee Trading fee Clearing & Settlement fee BDA fee Each of the above fees except membership fees has a significant link to the number of transactions executed in the market and the member has no way of being able to calculate their costs as the number of transactions is completely unpredictable. The scope is to revise each of these billing models. 3

4 Process undertaken for Billing Model review Sep 12 Oct 12 Nov 12 Feb 13 Mar 13 Apr 13 Survey conducted to formalise member feedback on Billing Issues Survey results communicated and Billing Working Group convened (as a subcommittee of the Equity Market Model Working Group) JSE and member modelling on potential identified trading fee models begins JSE one-on-one consultations on impact analysis and member feedback begins with Working Group members One-on-one consultations extended to include entire brokerage community Potential Trading Fee Model Finalisation from a Working Group perspective 4

5 Member Feedback on most important issues Fee Rankings BDA Fee Billing methodology Price per transaction Trading fee Clearing and Settlement fee Strate fee Swift fee BDA fee Data fee Membership fee Trading Fee Billing Methodology Price Per Hit Cannot reconcile invoice 0% 28% 2% 2% 5% 19% 9% 16% 72% 19% 65% 63% 5

6 R 1 R 4 R 5 R 5 R 7 R 15 R 20 > R20 JSE Equity Transaction Profile ( ) Trade Bucket Profiles > R R R R R R R R R R R R R R 0 - R Millions 6

7 7 Market Evolution

8 8 Market Evolution

9 Average Transaction Sizes as at 26 April All Trades: R R Central Order Book: R R Reported Trades: R R For 2012 approx: UK R81k; Europe R72k; US Nasdaq R63k; US NYSE R80k; Canada R51k; AUS R49k; China R23k; Hong Kong R 61k; India R3k; Brazil R45k 9

10 Comparative International Billing Models Considered Value Volume Executed Orders Trades LSE Shanghai Stock Exchange Deutsche Borse SIX Swiss JSE ASX National Stock Exchange of India Turquoise Chi-X (Australia) Chi-X (Japan) Tokyo Stock Exchange Toronto Stock Exchange Chi-X (Canada) NASDAQ NYSE Euronext (US) BM&F Bovespa Borsa Italiana Chi-X (Canada) Toronto Stock Exchange NASDAQ NYSE Euronext (US) Borsa Italiana Tokyo Stock Exchange NYSE (Euronext) Europe Hong Kong Stock Exchange ASX (fixed monthly capped fee) Chi-X (Australia) (capped fee per trade) Deutsche Borse (capped fee per trade) Toronto Stock Exchange (capped fee per trade) 10

11 Set of methodologies suggested by the Working Group Methodology Methodology Description A B C D Pure value based, with tiered discounts in the percentage charge, with value thresholds set starting at higher level than current model Value based, with low charge per trade, with a vanilla Maker/Taker concept Value based, with low charge per trade, with a Maker/Taker concept as per the HFT Working Group suggestion Low value shares charged based on value & high value shares charged based on volume E Value based, with cap and low monthly membership fee F Pure value based, with minimum low fixed monthly charge G Pure value based, with very low fixed charge per order for certain order types 11

12 Member Feedback Summation A per hit/trade methodology is unpredictable and not controllable, i.e. members unable to predict or manage costs Value based charge seen as more transparent, predictable and manageable and aligns member costs to JSE with member revenue 12

13 Methodologies modelled Top 3 methodologies as ranked by WG participants Rank Methodology Methodology Description 1 E Value based, with cap and low monthly membership fee 2 B 3 A Value based, with low charge per trade, with a vanilla Maker/Taker concept Pure value based, with tiered discounts in the percentage charge, with value thresholds set starting at higher level than current model Additional Methodology Modelled Methodology Description Pure value based model, no floor, no cap and no discounts 13

14 Considerations for a New Billing Model Removal of the floor Key issue of predictability as raised by clients is addressed 70% of trades are currently subject to the floor and removing the floor requires a significant increase in the ceiling Introduces downside risk from a JSE perspective and the cost to process a trade may not be recovered fully It is expected to introduce trading behavioural change and needs to be analysed 14

15 Considerations for a New Billing Model ( cont.) To cap or not to cap From a client perspective, charges need to be reasonable and should not become economically unsustainable to the extent that it artificially decreases market activity or causes activity to migrate Many market participants indicated that they believe discounts have not rewarded liquidity across all market players and have in some instances encouraged flow consolidation, which could lead to less market participants in the long run 15

16 Conclusion and Proposed Key Billing Model Concepts To move to a pure value based model where the JSE takes some revenue risk i.e. NOT just shuffling the deck chairs Given the most burning issue for clients is not being able to calculate costs, it is recommended that the floor be removed in order to have FULL PREDICTABILITY It is further recommended that a cap is instituted so that particularly high value trades can be economically sustainable and cost competitive In the presence of a cap, no discount structure is proposed as per the original ranked models. Changing the methodology is already a significant step and the trading behaviour change is unpredictable and needs to settle down before the JSE can consider any further enhancements to the model 16

17 Potential Consequences and Member Impacts The proposed new model for formal member consultation impacts members differently. The majority of members are positively impacted, however as a result of getting full predictability, some members are negatively impacted Changing the equity trades billing model to a value based negates the effect of hits from a trading fee perspective hence it is reasonable to expect that the change will escalate the number of hits in the market The fees for Clearing & Settlement and BDA Transactions are still based on hits and thus may escalate as an unintended consequence while those billing model review processes is underway. The JSE will monitor these potential consequences and take measures, through mechanisms such as rebates, until those billing models are revised 17

18 Proposed billing model for formal member consultation Value Based Model with parameters as follows: % charge: % Cap: R 350 No floor The above parameters are based on a number of assumptions which will be tested during the formal consultations 18

19 Way Forward As per Market Communication Session on 10 May 2013, the JSE Equity Market team will conduct formal consultations with all Equity Market members on the proposed new billing model Formal consultation will take place throughout June 2013 JSE aims to consult with all members JSE will provide detailed potential member impact information based on historical modelling in order to enable members to provide comprehensive feedback during the consultation process The other equity market fee models will be revised as soon as possible and this process will commence after completion of the formal consultation on the Trading Fee Billing Model proposal 19

20 20 Questions