Several years ago, Mark Hulbert, editor of The Hulbert Financial Digest conducted a study that examined the transaction costs incurred by the average investor. With the advent of discount online brokers, Hulbert determined that brokerage commissions had finally been eclipsed by bid/ask spreads as the single most expensive component of trading. This observation holds especially true for smaller-cap stocks, for which spreads can be substantially wider than their larger-cap peers.

That has particular significance for investors who wish to buy and sell equities in the Australian market. Until late last year, the Australian Securities Exchange (ASX) essentially had a monopoly on the local market. The lack of competition allowed the ASX to charge relatively high execution fees while lagging other global markets in trading efficiency.

With a $1.2 trillion market capitalization for the over 2,200 companies listed on the ASX, the Australian stock market may be the eighth-largest market in the world in terms of capitalization, but it’s still dwarfed by its developed-world counterparts such as the US and Japan. As a result, the smaller companies that comprise Australia’s market tend to trade with wider bid/ask spreads than other markets. In fact, a recent study conducted by the Capital Markets Cooperative Research Centre found that such inefficiency had caused transaction costs in Australia to be twice as high as Europe and four times as high as the US.

The good news is that this situation should improve in the coming years, particularly now that the ASX is already competing with another exchange. Despite the ASX’s best efforts to lobby against such competition, in early 2010 the Australian government agreed to start licensing other entities to operate electronic exchanges in Australia.

Chi-X Global, owned by Instinet, was the first outside firm to be granted such a license, and it finally launched its exchange at the end of October 2011. Thus far, its incursion into the Australian market has yet to steal substantial market share from the ASX. Chi-X only accounts for about 3 percent of the Australian market’s overall trading volume. But give Chi-X time. The company entered the UK market in 2007, and by 2010 it boasted a 28 percent market share there.

And Chi-X may be just the first of several eventual competitors for the ASX, as other firms may enter the fray. But so far, the biggest benefit to investors in Australian equities has resulted from the ASX’s initial response to forestall the government’s change of heart about its monopoly, and later its efforts to adjust to a new era of competition. Among its sweeping reforms, the exchange has revamped its technology to provide better execution of trades and slashed its trading fees from 0.28 basis points to 0.15 basis points.

As the Australian marketplace becomes more efficient as a whole, that will likely entice a greater number of high frequency traders (HFT) to enter the market, which should lead to a further narrowing of bid/ask spreads. Of course, the outsize presence of HFT in US markets has been enormously controversial, especially after they were believed to have exacerbated the 2010 Flash Crash. And the potential for HFT to boost market volatility is already spurring debate down under. In addition depressing share prices, a sustained jump in market volatility can actually widen bid/ask spreads. Ultimately, the question is to what extent technology will outpace regulation.

But even as transaction costs steadily improve, the Australian market still has to overcome its integrity gap. The same study that noted Australia’s relatively high transaction costs also found that its market is far more prone to market-distorting actions such as leaks of inside information than other developed-world markets. Although disturbing news for investors who rightfully expect a level-playing field in first-world markets, Australia’s resource-rich economy and dividend-paying stocks mean that it’s still among the most attractive destinations for an investor’s dollars.

The Roundup

Following are dates (confirmed, tentative or estimated) for each AE Portfolio Holding’s next earnings announcement. Where companies have reported recently, we’ve included a link to our discussion and analysis of results.

Conservative Holdings

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–Aug. 22, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• APA Group (ASX: APA, OTC: APAJF)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Australand Property Group Ltd (ASX: ALZ, OTC: AUAOF)–Jul. 26, 2012 (confirmed, CY/FY 2012 1H, end Jun. 30, 2012)
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–May 2 Down Under Digest (FY 2012 first half, ended Mar. 30, 2012), Nov. 5, 2012 (estimate, FY 2012, end Sept. 30, 2012)
• Cardno Ltd (ASX: CDD, OTC: COLDF)–Aug. 14, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–Aug. 21, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–Aug. 23, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–Aug. 29, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–Aug. 9, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Transurban Group (ASX: TCL, OTC: TRAUF)–Aug. 7, 2012 (confirmed, FY 2012, end Jun. 30, 2012)

Aggressive Holdings

• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–May 23 Down Under Digest (FY 2012 first half, ended Mar. 30, 2012), Nov. 14, 2012 (estimated, FY 2012, end Sept. 30, 2012)
• Iluka Resources Ltd (ASX: ILU, OTC: ILKAF, ADR: ILKAY)–Aug. 23, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–Aug. 20, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–Aug. 13, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–Sept. 20, 2012 (estimate, FY 2012, end Jul. 31, 2012)
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–Jul. 24, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–Aug. 23, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–Aug. 8, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–Aug. 29, 2012 (estimate, FY 2012, end Jun. 30, 2012)