One Year After Match System's Launch, Australian Posit Hits A$5 Mil/Match

One year after its Australian Posit equity order-crossing system was introduced in Australia, Melbourne-based broker Burdett, Buckeridge & Young has made decent inroads with the system. To date, BBY has managed to attract an average liquidity of about A$200 million ($151 million) at each of its two daily crosses.

As to actual successful matches between buy and sell orders, Australian Posit is currently executing an average of A$5 million ($3.8 million) at each crossing session, according to Greg Robinson, BBY's director for quantitative services and EDP. Matched orders have ranged as high as A$30 million ($23 million) for a single line of stock, and the amount of orders entered into the system by institutions have gone as high as A$400 million ($302 million) in a single session, he says.

In total, the volume traded through Australian Posit has reached .75 percent of the total traded in the Australian equity market, Robinson says. Posit was the first--and remains the only--electronic system to match buyers and sellers off the Australian Stock Exchange (ASX).

BBY is an institutional equity brokerage that is partly owned by Jefferies & Co., the U.S.-based broker that originally developed Posit as a crossing system for U.S. equities. BBY licensed Posit software, adapted it for the Australian market and began introducing the system to customers early last year (D&IS, 24 April, 1995).

Robinson says 30 institutions are connected to the Posit system, representing over 80 percent of the total funds under management in Australia. A core group of eight to 12 use Posit regularly, he says, with a few entering their entire basket of trades in the morning before sending any unmatched orders for execution directly on the stock exchange. In addition, he says, about half a dozen overseas investors in Australian equities also routinely send orders to Australian Posit.

"That gives us a decent baseline of liquidity," Robinson says. "Our next goal is to broaden the base of users and build on that momentum."

Posit users range from active managers to passive, and have shown no particular bias towards small-cap or large cap companies, says Robinson. In terms of the relative volumes executed through Posit, Robinson says on one occasion--which he calls a "rarity"--one month's average turnover in a stock changed hands in a single Posit crossing session. Instances where a week's turnover will trade in a single cross are more common, he says.

Separately, significantly less progress has been logged by the broker's Financial Information SuperHighway Network, a.k.a. Fishnet initiative. Fishnet was a venture to promote the use of the Internet to deliver customer orders, brokers' research and other financial information and applications in Australia (D&IS, 24 April, 1995). Faced with lacklustre response from the market, BBY has effectively put the venture on hold, Robinson says.

"Fishnet is basically hanging out to dry in the sun," Robinson says. "On the one hand, those who were most keen on the idea of using the Internet have the expertise to work on something inhouse. On the other, there's no shortage of packaged Internet connections with firewalls readily available.

"Plenty of brokers have made progress getting their research collections out over the Internet," he adds. "But control over bandwidth and privacy have more relevance to routing customer orders over the net, and that's an idea that people still don't seem ready for."

BBY currently has a team of two dealers devoted to Posit customers. The marketing of the system is being handled by Robinson.

BBY conducts two crosses daily, at 11:00 a.m. and 3:00 p.m. Sydney time. Institutional investors place anonymous buy and sell orders from their Microsoft Corp. Windows PCs. Posit then matches orders for like shares and executes them at the mid-point between the buy and sell prices.

Since the system's launch, BBY has added a number of features to Australian Posit to allow investors to customise their orders. Users can now specify a minimum number of shares to trade or can indicate they wish to trade all or none. They may also set a minimum fraction of their entire list to trade.

Robinson says Posit users are now also able to place some more complex constraints on their orders. They may now enter a linked buy and sell order, for example, to buy a net of $2 million more than they sell, or $5 million more than they buy. These features, and others that BBY has yet to add to Australian Posit, were developed in the U.S. as part of the American Posit system.

Next on BBY's list of planned enhancements is an improvement to the interface to allow BBY to report the results of each session back to users electronically. Robinson says BBY also plans to add the ability for users to watch the status of their orders throughout the crossing session.

BBY's Posit remains Australia's only electronic system to match buyers and sellers outside the ASX. Australian Posit is not an alternate exchange but rather is categorised as an ASX member firm's private system for facilitating customer business. As such, deals executed through Posit are subject to ASX rules.

As a result, all deals of A$1 million ($756,000) and above must be reported through the exchange's systems, and BBY must enter all deals below that threshold into the ASX's Stock Exchange Automated Trading Systems (Seats) for execution at the prevailing market price. If the market moves away from the price set by Posit for a deal below A$1 million before BBY can get the trade through, BBY would either have to make good the trade or break it. Robinson says that the issue seldom arises. There have been virtually no instances where such a trade was broken, he adds.

BBY charges .25 percent and .15 percent as its brokerage commission for trades crossed through Australian Posit, depending on the amount of usage.

"Obviously, .25 percent is not a pure execution rate," Robinson says. "But we were concerned about cannibalising our main business." Instead, the firm has a sliding-scale of discounts available for the system's largest users, he says.