Chi-X Australia has accepted the first products for quoting and trading on its warrants trading platform, introducing a new investment products trading and issuing market. “In the coming months we will drive liquidity and growth through increased investor awareness, more relevant and well-designed product, excellent execution and cheaper trading and issuing fees,” said John Fildes, CEO of Chi-X Australia. “Traditionally, Chi-X has competed for trading value in stocks listed in other markets, but this is the first time a Chi-X venue has been licensed not only as a stock exchange but as a derivatives trading venue and market operator.”
Citi has issued four mini warrants for the launch of the new market including a long and a short mini warrant linked to BHP Billiton shares and corresponding long and short minis linked to Commonwealth Bank of Australia shares.
This is also the first time the exchange has listed a unique set of products which is not available in any other exchange or the ASX, according to Fildes. “These products are exclusive to Chi-X and issued by Citi, and this is just the first step in building an investment products platform,” said Fildes. Australia has the fourth largest retirement savings pool in the world yet there are a limited amount of investment opportunities in the market, according to Fildes.
Chi-X’s initiative to revitalize warrants trading in Australia is the first step in its investment products initiative that will also see exchange traded funds (ETFs), a range of investable indices to be exclusively traded on Chi-X in the first half of 2016, and other investment products including structured products at a later stage.
“With domestic investment options and returns harder to come by, Chi-X’s investment products marketplace aims to provide Australian investors such as SMSF’s with asset and product diversification, risk management and hedging tools, leverage where appropriate and access to offshore markets and new investment opportunities,” said Fildes. “The first products we are launching are warrants, because we believe are a very important tool for self-managed super funds (people that manage their own pension funds), and they represent an asset pool of over A$600bn on their own. These products can be used to hedge positions in their portfolios and can be used to get some downside protection (going short) in their portfolios.”
According to Fildes, Chi-X has plans to release a new set of investable indices in March 2016 also targeting the SMSF sector, and an ETF trading platform targeting ETF issuers that can launch new funds based upon the indices the exchange is going to create in April.
“At the moment, the S&P ASX 200 is dominated by banks and natural resources companies (representing 75% of the market cap of the index),” said Fildes. “While that may be an index that reflects what is happening in Australia in a trading day, we don’t think it should never be a benchmark for someone’s retirement. No one in their right mind would benchmark their retirement to something that offers 75% exposure to financial and natural resources firms. Our goal is to create a much more diversified index by capping those sectors so that the exposure to these sectors cannot be more than 15% of the index. These indices will be followed by life cycle indices, smart beta strategies, balanced indices and many other benchmark opportunities such as drawdown indices aimed at people in retirement which will incorporate low volatility, high yield stocks and other risk control layers.”
This is just the first stage of the platform development, said Fildes. “We have plans to develop a comprehensive platform and we are considering structured products and other exchange-traded products (ETPs) although we’re keeping some of our plans under the radar because we don’t want our competitors to know exactly what we are thinking,” said Fildes. “We have a number of product types we’re planning to launch as we build the platform. Our goal is to become the exchange of choice for the retail investor in Australia and the main exchange for derivative-based products.”
Fildes is confident Chi-X will strengthen its footprint in the Australian market as an alternative exchange, and develop products that can meet specific needs of investors. “This approach will help to increase the activity around other existing products, such as index-linked structured products,” said Fildes. “We believe that in a couple of year there could be more than A$100bn of Australian retirement assets benchmarked to derivatives based products. At the moment SMSFs are sitting on over A$200bn in cash and deposits, and we don’t think that is a good way to generate returns for your retirement. We want to offer investors products that they can deploy to meet their retirement goals.”
Year to date, investors have saved more than A$34.6m in price improvement opportunities on Chi-X, according to Fildes. “We are confident this success can be replicated on our easily accessed, transparently traded, Australian based and regulated investment products platform,” he said. “As part of its commitment to rebuild the market Chi-X is undertaking a comprehensive investor education program including producing a range of materials covering an investing in warrants booklet, a new website, a series of educational videos focusing on warrants, and in the near future a smart phone app with real time pricing, and a range of trading games.”
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