He also took a veiled swipe at the zero cost brokerage models advocated by US platform Robinhood that has given millions of young traders access to the sharemarket and was at the centre of the epic GameStop short squeeze in January.
“I’m a sort of believer that if something is free, you’re probably the product,” he said at the Stockbrokers and Financial Advisers Association conference.
“I’m not sure whether people understand that if you’re in the US and you’re a retail investor, you actually never make it to the equity market,” he said.
“You get taken off to a side room, and you end up trading with three or four market makers,”
Cost versus transparency
Mr Stevens defended Australia’s higher cost market structure which he said was more transparent than the United States. In the US a variety trading venues for order flow while retail brokers sell that flow to market makers, allowing for zero cost brokerage.
The Australian market structure, he argued, meant traders were aware of the service they were paying for “rather than paying for a service and I know something’s happening in the background but I’m just not quite sure.”
Proponents of the zero cost brokerage model have argued that even though market makers pay to take the other side of retail trading volume, the regulations require that they still offer the best price available.
Mr Stevens was also asked about plans to allow cryptocurrencies to list on the ASX, potentially in the form of an exchange traded fund.
Even as more institutional investors consider investing in crypto-currencies, traders in the sector endured one of the most volatile weeks in months as Bitcoin plunged 50 per cent from its peak only to retrace half that decline.
Mr Stevens said regulators were still trying to work out what a cryptocurrency actually is.
“Is it a currency? Is it a commodity, or is it, governed by the Corporations Act? There’s a bunch of things that I think the regulator wants to understand and the same things are going on in the US with the SEC[Securities Exchange Commission]”
But he suggested the ASX would in time facilitate the listing on a cryptocurrency ETF with a reputable provider and a solid custodian. that might better protect investors.
“Then people would have access to something that actually they feel that they could trust. Even though they know it’s volatile, they know that they won’t turn up one day and that the company [exchange] has disappeared.”
“It will be interesting to see how the next six months play out.”
Tim Hogben, the group executive responsible for equity trading at the ASX told the audience of stockbrokers and financial planners to prepare for new entrants that will force them to rethink how they offer their services.
But he said “we shouldn’t throw away the good that has been built up over the past decades.”
Mr Hogben said there was a proliferation of shadow brokers and alternative models, such as nominee or custodial structures aimed at lowering the cost of accessing the market.
Superhero, for instance, has sought to reduce trading costs through a custodian model in which it bought and sold shares through a single HIN to consolidate settlements and lower the cost of trading.
While he said these alternative models were “fine” he said there needed to be education around the risks.
“Structures like this serve a purpose,” he said without referring to a specific provider.
“But is everyone aware and as transparent as to what this could mean? Often it’s not until times of stress that you really understand what that means and what it doesn’t mean.”