> Broker offerings here seem a few "paradigm shifts"
> behind the US. Zero commissions are unheard of last
> I checked.
A US-style zero-commission model is not viable in the Australian landscape. The root of this is due to regulatory differences, rather than actions by the brokers.
A key to understanding the US system is something
called Regulation National Market System (RegNMS). Loosely, if you are filling an order for someone, it must be at a price that is at least as good as the best price available on any US market at that time. [Anecdotally, if the NYSE receives an order, and there is a better price available for the same stock on Nasdaq at the same time, NYSE can't fill it at their inferior price.]
This creates a hyper-competitive single market. At any one time, you can know the bid/ask spread for any stock, nationally. And, it's a tight spread.
Market makers compete here. But a market maker would prefer to interact with retail orders. Because what a typical retail participant cares about is getting an immediate execution at the best price currently in the market, in order to make a long-term investment.
So a market sprung up: market-makers pay brokers to send these benign orders to them directly, without going through the public market. The market maker fills these order at a price that satisfies RegNMS. [Some of them might even distinguish themselves by giving the consumer a better price than they would have got on the public market. Your broker might send you a report with your trade saying how much "price improvement" you got compared to what you would have got at the same time on the public market.]
The reason the trade is "zero commission" is because the market maker is paying your broker for the privilege of interacting with you directly, because you don't have a view on where the market is going to be in five seconds' time.
Australia has not developed anything equivalent to RegNMS. Without that, there is no foundation for the zero-commission trades (there is no national best price to protect consumers with). In Australia, the typical situation is retail orders being sent directly to the book on the ASX (a pseudo-monopoly exchange), where they are directly interacting with the most sophisticated houses.
If you google, you can find an ASIC paper trumpeting that Payment for Order Flow has been banned. In my view, the real story is a lack of innovation by Australia's regulators.
A key to understanding the US system is something called Regulation National Market System (RegNMS). Loosely, if you are filling an order for someone, it must be at a price that is at least as good as the best price available on any US market at that time. [Anecdotally, if the NYSE receives an order, and there is a better price available for the same stock on Nasdaq at the same time, NYSE can't fill it at their inferior price.]
This creates a hyper-competitive single market. At any one time, you can know the bid/ask spread for any stock, nationally. And, it's a tight spread.
Market makers compete here. But a market maker would prefer to interact with retail orders. Because what a typical retail participant cares about is getting an immediate execution at the best price currently in the market, in order to make a long-term investment.
So a market sprung up: market-makers pay brokers to send these benign orders to them directly, without going through the public market. The market maker fills these order at a price that satisfies RegNMS. [Some of them might even distinguish themselves by giving the consumer a better price than they would have got on the public market. Your broker might send you a report with your trade saying how much "price improvement" you got compared to what you would have got at the same time on the public market.]
The reason the trade is "zero commission" is because the market maker is paying your broker for the privilege of interacting with you directly, because you don't have a view on where the market is going to be in five seconds' time.
Australia has not developed anything equivalent to RegNMS. Without that, there is no foundation for the zero-commission trades (there is no national best price to protect consumers with). In Australia, the typical situation is retail orders being sent directly to the book on the ASX (a pseudo-monopoly exchange), where they are directly interacting with the most sophisticated houses.
If you google, you can find an ASIC paper trumpeting that Payment for Order Flow has been banned. In my view, the real story is a lack of innovation by Australia's regulators.