U.S., European Bourses Face More Merger Pressure; ASX CEO

ASX Ltd. faces less pressure to merge with competitors than North American and European exchanges, which are grappling with “hopelessly fragmented” markets, said Chief Executive Officer Elmer Funke Kupper.

ASX’s broader offering of services across different financial products means it’s not as compelled to depend on volume, Funke Kupper, who heads the operator of Australia’s main stock exchange, said at an event in Melbourne today. The Australian bourse won its battle in February to maintain a monopoly in the clearing and settlement of equity trades for at least the next two years.

“We do not have any pressures, nor do we have any plans” to seek a merger, Funke Kupper told reporters after the event. “It is not a particular ambition that we have at all.”

Australia’s Labor-led government in 2011 vetoed an A$8.3 billion ($7.8 billion) deal with Singapore Exchange Ltd. Since then, Hong Kong Exchanges and Clearing Ltd. bought the London Metal Exchange for $2.2 billion, while Japan Exchange Group Inc. was formed from a merger of rivals in Tokyo and Osaka. The European Commission approved IntercontinentalExchange Inc.’s bid for NYSE Euronext in June.

U.S. equity trading, which began on Wall Street more than two centuries ago and was dominated by the New York Stock Exchange for most of that period, has become dispersed among more than 50 electronic platforms accessible around the world.

Capital Raising

ASX saw growth in its trading businesses in the first 2 1/2 months of this fiscal year, it said Sept. 25. Australian business confidence surged in September to the highest level in 3 1/2 years as majority government and lower interest rates encouraged companies. Tony Abbott’s coalition ousted the Labor government on Sept. 7, ending three years of a hung parliament.

The bourse raised A$553 million this year to pay down debt and expand the exchange’s clearing facility to meet new rules for operators into European markets.

Funke Kupper today described the regulatory changes as “unrelenting”. Clearers act as central counterparties in derivatives contracts to dilute the risk of default.

Derivatives comprised 32 percent of ASX’s sales last fiscal year, the largest component. Equity trading accounts for 5 percent of the company’s revenue, Funke Kupper said today.

The bourse’s net income for the 12 months ended June 30 rose 2.7 percent from a year earlier to A$348.2 million, the Sydney-based company said August 22. Operating revenue climbed 1.1 percent to A$617.4 million.

Chi-X Australia Pty., backed by Nomura Holdings Inc., which began trading in all companies on the benchmark S&P/ASX 200 Index in November 2011, competes with ASX, the former monopoly public venue for share trading in Australia.

Less Liquidity

While the alternative venue’s market share will continue to rise above 9 percent, the amount of annual revenue the pair compete for in equities trading has fallen to about A$35 million, from A$50 million before Chi-X’s entry, Funke Kupper said.

“The most efficient markets are where liquidity is concentrated in one place,” Funke Kupper said. “When you break up market places, you create multiple trading venues where the liquidity is less.”

The exchange is “comfortable” with investor use of dark pools and high-frequency trading, which both comprise about 25 percent of the market, because of regulations in the country, Funke Kupper said.

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