Chi-X Granted License to Open Competing Australian Exchange

Chi-X Wins Australian Government License
A sign for Chi-X Global Inc.'s regional unit, Chi-X Australia Pty, is seen in Sydney. Photographer: Ian Waldie/Bloomberg

Australia awarded an operating license to Chi-X Australia Pty, opening the Asia-Pacific’s fourth-largest equity market to competition from foreign-owned exchanges for the first time.

The country’s government today granted a license to Nomura Holdings Inc.-owned Chi-X, Financial Services Minister Bill Shorten and Treasurer Wayne Swan said in an e-mailed statement. The unit of Japan’s largest brokerage will open its equity trading platform to both retail and institutional investors, Chi-X Australia said. The approval comes less than a month after Swan month rejected a takeover of ASX Ltd., operator of Australia’s main bourse, by Singapore Exchange Ltd.

“Competition in Australia’s financial markets is critical to promoting exchange innovation and lowering transaction costs for market participants,” Shorten and Swan said in the statement.

Chi-X has said it plans to start operations in the fourth quarter of this year. It will be the first foreign-owned market operator since the country’s original stock market opened in the southern city of Melbourne in 1861. Traditional bourses are facing rising competition from alternative systems such as so-called dark pools, off-exchange platforms that offer investors anonymity and don’t publicly display prices, run by New York-based Liquidnet Holdings Inc. as well as Citigroup Inc. and Deutsche Bank AG.

‘Significant Milestone’

Introducing competition in the local exchange market, dominated by Sydney-based ASX, 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. Shorten in March said other exchange-license applicants would be considered on their merits.

“This is a significant milestone in the ongoing development and growth of Australia’s financial markets and Chi-X is delighted to have played an active role in shaping the new regulatory environment,” Peter Fowler, chief operating officer of Chi-X Australia, said in an e-mailed statement. “Chi-X will provide both existing and new market participants greater choice and flexibility.”

The Australian industry will need to “prepare for a multi-market environment,” the Australian Securities & Investment Commission said on March 3. Chi-X was required to meet conditions on computer systems, resourcing and staffing, which includes having procedures in place for ASX and Chi-X to simultaneously halt trading, the regulator said. Chi-X will trade Australian stocks and clearing will be done through ASX, the company said in an e-mailed statement.

Competition Timetable

“The government also recently commissioned Australia’s financial regulators to consider potential measures to preserve the integrity of our financial infrastructure, particularly clearing and settlement facilities,” Shorten and Swan’s statement said.

ASIC announced a timetable for the licensing of competitors to ASX in early March, saying that Chi-X could potentially begin a rival exchange service after completing computer system checks in September.

Chi-X no longer faces the prospect of having to compete with Singapore Exchange, whose proposed A$8.3 billion ($9 billion) takeover of ASX was blocked by Swan on April 8. The deal, unanimously recommended by the companies’ boards, was an attempt to compete with rival exchanges in Tokyo and Hong Kong, the Chinese city where a record $58 billion was raised in equity offerings last year, according to data compiled by Bloomberg.

Global Consolidation

Chi-X Global Inc., 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. The company’s entry into the Australia’s market occurs at a time when global exchange mergers are intensifying as operators compete for access to global capital.

Even accounting for the failed Singapore-Australian deal, exchanges have announced takeovers totaling about $20 billion since October as competition forced chief executive officers to seek to cut costs by expanding into new markets.

Deutsche Boerse AG agreed a $9.5 billion purchase of NYSE Euronext that would create the world’s largest exchange operator. London Stock Exchange Group Plc said it will acquire Canada’s TMX Group Inc., owner of the Toronto bourse.

Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. announced a rival offer for NYSE Euronext, which the company’s board has twice rejected.

Singapore, Hong Kong

Singapore Exchange is prepared to discuss a merger with other bourses such as Hong Kong, according to President Muthukrishnan Ramaswami.

The exchange isn’t currently working on a “transformational deal,” and is focusing on expanding its clearing services for derivatives, growing company listings and finding collaborative agreements that drive revenue, he said in an interview this week at the World Federation of Exchanges IOMA/IOCA conference in Mumbai.

“If Hong Kong came to us and said: shall we merge, we wouldn’t say no at all,” Ramaswami said. “Hong Kong would bring us size. We have no problem being a junior partner. But it would be all about the detail.” There has been no approach or discussion to date, he said.

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