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Singapore Exchange's ASX Takeover Offer Gets a Boost From Chi-X Approval

Regulatory approval of Chi-X Global Inc. as a competitor to Australia’s main bourse operator may make it easier for Singapore Exchange Ltd. (SGX) to tackle political opposition to its bid for ASX Ltd. (ASX)

“Keeping the status quo is not an option” for Australia, Singapore Exchange Chief Executive Officer Magnus Bocker said in Sydney after the nation’s markets regulator gave the go-ahead yesterday to foreign owned Chi-X to start a rival exchange. The Singapore bourse’s A$7.6 billion ($7.7 billion) bid for ASX has been opposed by some lawmakers who say it is against the national interest.

Yesterday’s approval of Chi-X to become the first foreign- owned stock exchange operator in Australia’s 150-year trading history may ease lawmakers’ concerns about one foreign-owned company monopolizing trading in Australia. Introducing competition in the local exchange market is a key pillar of plans by the Labor Government led by Prime Minister Julia Gillard to help turn the country into a global financial hub.

“By allowing competition we are promoting Australia as a financial services hub and helping ensure our financial markets are efficient and innovative,” Financial Services Minister Bill Shorten, who approved the regulator’s report, said in an e-mail yesterday. Other license applicants would be considered “on their merits,” he said.

ASX shares closed up 0.6 percent at A$35.88 in Sydney yesterday, having risen as much as 2 percent earlier in the session. Today they climbed 2.2 percent to A$36.66. Singapore Exchange stock dropped 0.5 percent today.

The Australian Securities & Investments Commission announced a timetable for the licensing of competitors to ASX, along with plans for new “market integrity” rules. It says Chi-X can start offering a rival exchange service after completing computer system checks in September.

‘Growing Trend’

“These regulatory developments in Australia further highlight how the exchange sector itself is changing, just as other proposed mergers show that consolidation is a growing trend,” Bocker told Bloomberg News yesterday. “Keeping the status quo is not an option. The real question is how we stay on the right side of these trends.”

Singapore Exchange, which runs the city’s securities and derivatives market, offered to buy ASX on Oct. 25 in a cash and share deal then valued at A$8.4 billion, a 42 percent premium to ASX’s share price at the time.

Photographer: Ian Waldie/Bloomberg

Chi-X Australia Pty Chief Operating Officer Peter Fowler at the company's headquarters in Sydney. Close

Chi-X Australia Pty Chief Operating Officer Peter Fowler at the company's headquarters in Sydney.

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Photographer: Ian Waldie/Bloomberg

Chi-X Australia Pty Chief Operating Officer Peter Fowler at the company's headquarters in Sydney.

The deal still requires the support of Australian Treasurer Wayne Swan, the Reserve Bank of Australia, ASIC and parliamentarians, several of whom have opposed the sale.

‘Hot Potato’

“I’m sure SGX will say that there’s another foreign player coming in, and therefore that it shouldn’t be a concern to some pundits who are concerned about the ASX merging with the Singapore Exchange,” said Sydney-based Paul Xiradis, who manages about $12 billion as chief executive officer of Ausbil Dexia Ltd. “Still, the reality is that in Australia the merger is still politically a very hot potato.”

The industry will need to “prepare for a multi-market environment,” the regulator said in yesterday’s announcement. According to ASIC’s timetable, the licensing of Chi-X could occur as early as April, around which time the regulator also expects to finalize market integrity rules designed for the new competitive landscape.

Chi-X is required to meet conditions on computer systems, resourcing and staffing. One requirement is for ASX and Chi-X to have procedures in place to simultaneously halt trading.

Chi-X Australia Pty’s Chief Operating Officer Peter Fowler said in an e-mailed statement yesterday that ASIC’s regulatory timetable “provides a sensible set of transitional arrangements” to help the industry move toward a competitive environment in “an orderly way.”

Chi-X ‘Confident’

Chi-X Global, the parent company for regional units including Chi-X Australia and Chi-X Japan Ltd., is owned by Instinet LLC, a subsidiary of Tokyo-based Nomura Holdings Inc.

“We’re confident we can meet the dates set out in the timetable and we will certainly be trying to improve upon them,” Fowler told Bloomberg. “We won’t have everyone connected and cover every stock on day one. Rather, it will be a phased operation over a matter of months.” Chi-X is unfazed by the prospect of competing with a merged ASX-SGX, he said.

ASX spokesman Matthew Gibbs said in a telephone interview from Sydney yesterday that the licensing plan for Chi-X and other potential competitors “reinforces the rationale for the merger proposal.”

Singapore Exchange’s bid received a boost last month when Europe’s Deutsche Boerse AG and NYSE Euronext (NYX) agreed to merge, and after London Stock Exchange Group Plc said it would buy Canada’s TMX Group Inc., increasing pressure on rival exchanges to expand.

Foreign Investment

Singapore Exchange’s bid needs the approval of parliament, where Gillard’s Labor Party is in a minority and rules with the support of the Greens Party and three independents.

One independent lawmaker, Bob Katter, has introduced a private member’s bill to parliament calling on lawmakers to “oppose any sale of the Australian Securities Exchange that would provide majority foreign ownership.” Greens leader Bob Brown is also opposed.

Singapore Exchange offered on Feb. 15 to give more board seats to Australians in a concession aimed at overcoming opposition to the deal.

Bocker, who is seeking to attract business away from rival Hong Kong Exchanges & Clearing Ltd., told Reuters news agency this week that he didn’t plan any further concessions to win approval for the deal.

Singapore Exchange is paying an “unusually high” price for the takeover, Atsushi Saito, president of the Tokyo Stock Exchange, a shareholder of the Singapore bourse, told reporters in Tokyo on Feb. 22.

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Gemma Daley in Canberra at gdaley@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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