ASX rebates clearing fees to Option traders

The ASX fee clearing rebates for January hit clients’ accounts last night (26th February 2021).

From the ASX: “To help promote growth in the equity options market, ASX will introduce an Options Liquidity Growth Program in the form of fee rebates for three months from 1 January through to 31 March 2021.

The three-month fee rebate will probably cost the ASX about $3.6m. According to the ASX half yearly accounts, Equity Options contributed $7.2m of the $470m total revenue for the half year to 31st December 2020.

The rebate comes on the back of the loss of Tailor-Made Combination (TMC) functionality between November and 21st December 2020. For active participants, the loss of TMC functionality was a major loss in the smooth operation of the market. Again, according to the ASX: “This core functionality enables TMC orders to be created with multiple legs and then executed together at a net price.  Returning this functionality supports the majority of trading for which equity options customers use TMCs.”

As an active participant in the Equity Option market, we found that excessive price risk was created for clients that needed to leg into individual trades, rather than execute a single trade. We found that the Market Makers were very co-operative in assisting executing the multiple legs. The ASX did relax the crossings rules, allowing us to manually book some of the multiple leg orders with the Market Makers, although the increased administrative burden became cumbersome.

ASX turnover figures showed that the number of contracts traded fell by about 16% for the month between November and December 2020.

Although the loss of TMC functionality did depress turnover in the market, the long-term trend in activity is markedly down. Since the 30th June 2012 until January 2021, the annual number of lots traded has fallen by 58.5%.

Source: ASX
Source: ASX
Source: ASX

Hopefully, the ASX’s initiative in rebating contract clearing fees for three months through to March 2021 will give a welcome boost in turnover and liquidity. Unfortunately, the rebates were not well communicated with the January rebate paid in March, after January and February trading had been completed, leaving possible clients’ awareness only for the trading month of March. The feedback we receive from clients centers on the need for greater liquidity and tighter spreads, not the $0.13c or $0.45c ASX cost per contract. We will keep you posted.