A Cross-Country Comparison of Charges of Exchanges

In reading this article in the Wall Street Journal by By Rebecca Thurlow, Alison Tudor And P. R. Venkat about the potential merger of SGX with ASX, I saw this interesting cross-country comparison of exchange charges (in basis points):

Country Trading and clearing Taxes
Singapore 4.75 0
Hong Kong 1.1 20
Taiwan 0.75 30
Korea 0.54 30
Australia 0.53 0
India 0.35 27
Japan 0.24 0

It is quite a striking set of facts.

First, we see that in terms of the core trading and clearing — the charges of the exchange — India is the 2nd lowest in this pile, with a value of 0.35 basis points. This is slightly worse than Japan (0.24 basis points) and superior to all the others. This partly derives from the immense economies of scale at NSE and BSE, which are ranked at 3 and 5 in the world by number of transactions. This is also about the cost-efficiency of the human part of running an exchange: small exchanges like SGX cannot match the price points which NSE and BSE can reach. In this field, as in finance more broadly, India is pretty good at reaching up to world class at below the world price. This was the basic logic, if you recall, of Percy Mistry’s Mumbai as an International Financial Centre report.

Secondly, we see the huge problem that transactions taxes present in all these countries other than Singapore, Australia and Japan. The Indian charge of 0.35 basis points is just swamped by the taxation of 27 basis points. Even if NSE cut charges by half, and got down to 0.175 basis points, this would do nothing for the end-customer who is paying 27.35 today and ends up paying 27.175 across the price cut. Conversely, Singapore, with the least efficient exchange (4.75 basis points) ends up being a nice place for the customer because there is no tax upon transactions there: only Australia and Japan are better than Singapore.

Economists are very clear that all taxation of transactions is distortionary. It’s puzzling why so many countries (four out of these seven) continue to indulge in something which is an elementary mistake in public policy.

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