What impact will a second exchange have?

For a retail investor with small order volumes who holds shares directly, the impact of a second exchange would be minimal

A multi-exchange environment with ultra-high speed trading platforms leads to the proliferation of what are known as "high frequency trading" (HFT) firms.

The widely accepted view suggests that liquid markets and narrow spreads reduce the cost of trading.

This is only partly true as HFT provides "artificial liquidity" that comes with a cost.

For a retail investor with small order volumes who holds shares directly, the impact is minimal.

Buy-sell spreads are tighter so the cost of trading theoretically falls if you are always trading market orders (paying the offer when buying, or hitting the bid when selling).

The trap is in identifying the right price for the stock.

As over 30% of volumes in the Australian market are HFT driven and some independent research suggests HFT trades increase short-term volatility, the benefits received by spread compression may be outweighed by the cost of paying too much during a "price spike".

Cheaper fees offered by new exchanges are mostly offset by increased cost of surveillance and technology that your broker is forced to pay, so don't expect commission rates to fall just yet.

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