ASX Keeps Clearing, Settlement Monopoly, Government SaysAdam Haigh
ASX Ltd., the operator of Australia’s main stock exchange, will maintain its monopoly on the clearing and settlement of equity trades for at least two years, the government said.
Treasurer Wayne Swan accepted advice from the Council of Financial Regulators to defer for two years any license application from an equities clearing facility seeking to compete in the Australian market, according to an emailed statement today. ASX is required to develop a code of practice with key stakeholders to ensure transparent and non-discriminatory access to its infrastructure.
ASX Chief Executive Officer Elmer Funke Kupper and Chairman Rick Holliday-Smith argued last year that competition may raise risks to market stability and push transactions overseas out of the reach of Australian regulators. LCH.Clearnet Group Ltd., Europe’s largest clearing house, had applied for a clearing and settlement license within Australia, the Reserve Bank of Australia said in a report in October.
“While competition would be expected to deliver efficient outcomes, now may not be the appropriate time for changes that will have further cost implications for the industry, given current market conditions and the magnitude of regulatory change already under way,” Swan said in the statement.
ASX will put in place a code of practice for its cash equities clearing and settlement services within the next six months, the company said in a statement today. This will be reviewed after two years, it said.
“The fact that they’ve now delayed the decision is a bit of a surprise,” Ross Curran, an analyst at Commonwealth Bank of Australia in Sydney, said in a telephone interview today. “It’s one that is positive for ASX given it gets to maintain its monopoly.” He has an “underweight” recommendation on the shares with a price estimate of A$30.
Of the 17 analysts tracked by Bloomberg who rate ASX, four advise buying the stock, while six recommend selling. The shares soared 15 percent this year through the end of last week, compared with a 6.9 percent advance on Australia’s S&P/ASX 200 Index. ASX is due to report first-half profit on Feb. 21. The shares slid 0.2 percent to close at A$35.88 in Sydney.
Prime Minister Julia Gillard’s government in August ended a review of ASX’s domination of the clearing-house business, which guarantees buy and sell orders to protect against defaults.
The country’s main stock exchange suffered declining equity-trading volumes after losing its monopoly as Australia’s only public bourse with the entry of Nomura Holdings Inc.’s Chi-X Australia in November 2011.
The ASX’s monopoly on clearing and settlement services was cited by Swan as a reason for him rejecting a takeover bid in 2011 from Singapore Exchange Ltd.
The Council of Financial Regulators that made the recommendation to Treasury is comprised of members from the central bank, regulators and the government. Its ruling on clearing and settlements applies to cash equities, not to over-the-counter markets or exchange-traded markets.