ASX Profit Declines as Reduced Equity Trading Crimps Revenue

ASX Ltd., operator of Australia’s main stock exchange, reported first-half net income fell as reduced stocks trading hurt revenue.

Group revenue fell 3.3 percent from a year earlier, although performance between the first and second quarters varied significantly, the Sydney-based company said in a regulatory statement. Net income in the six months through Dec. 31 dropped 2.5 percent to A$171.1 million ($176 million) from a year earlier, the company said. ASX was expected to report profit of A$169.5 million, according to the average of four analysts’ estimates compiled by Bloomberg.

ASX is fighting to stave off competition in equity trading from Chi-X Australia Pty and so-called dark-pool operators as volumes decline around the world. ASX this month won its battle to maintain its monopoly on the clearing and settlement of equity trades after the government delayed opening up competition for at least two years.

“The first half of the financial year remained challenging as trading activity in equity markets continued to be near cyclical lows and well below the levels of the previous year,” said ASX Chief Executive Officer Elmer Funke Kupper.

ASX shares fell 3.4 percent to A$35.76 at the 4:10 p.m. close of trading in Sydney, the biggest drop since August.

Trading Decline

Revenue from the company’s cash-market activities slumped 18 percent to A$54.9 million as the average daily value traded on ASX fell by 24.5 percent. That was more than the 19.9 percent decline in the daily value of equities traded across all venues, both on and off-market, according to ASX.

Traditional exchanges worldwide are losing market share to dark pools and other alternative trading venues, such as Chi-X, which in 2011 started operating as Australia’s sole competitor to ASX.

Equity volume fell around the world last year, with the average daily trading for companies listed on U.S. exchanges dropping 18 percent, data compiled by Bloomberg show. Australian trading volume declined 7.8 percent.

While ASX’s first-quarter total revenue slipped 8.8 percent, growth in its non-cash market businesses helped bolster sales in the second quarter, with growth of 2.8 percent, according to today’s statement. Revenue from listings and issuer services climbed 7.3 percent to A$73.6 million in the six-month period, while technical services sales rose 8.8 percent to A$24.6 million.

Monopoly Maintained

The company, which this month won its battle to maintain its monopoly on the clearing and settlement of equity trades, also said it’s committed to investing in such infrastructure and that it would work with industry members and regulators to establish a new code of practice within the next six months.

ASX CEO 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.

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 a statement on Feb. 11. LCH.Clearnet Ltd., Europe’s largest clearing house, has applied for a license to operate services in Australia.