Australia Ends ASX Equity Clearing Monopoly, Treasurer Says

  • Sensible decision in best interest of markets: ASX chairman
  • Government says it will also loosen ownership rule process

Australia will end ASX Ltd.’s monopoly on equities clearing, a move that could open the way for more competition between the country’s stock exchanges.

ASX will cut its equities clearing fees by 10 percent from the start of July and will remain the sole provider of cash equities clearing until the government’s conditions for effective competition are established, the company said in a statement. Australia will also loosen ownership restrictions on ASX, Treasurer Scott Morrison said.

The country’s largest stock-trading venue already competes with Chi-X Australia Pty., which has protested the clearing monopoly and lobbied regulators to change the system in the world’s 12th-largest stock market. Opening up equities clearing should make it cheaper for rivals like Chi-X to operate and boost innovation, freeing them from having to work as closely with their biggest competitor.

“The opening up of competition in the clearing of cash equities is in line with the government’s commitment to competition law reform,” Morrison said in a statement Wednesday.

Open Market

ASX generated about A$90 million ($69 million) from equity clearing and settlement in its last financial year. That’s about 13 percent of its operating revenue, according to its annual report, and the exchange has been criticized by brokerages for its costs. A study commissioned by firms including Citigroup Inc. and Deutsche Bank AG said in late 2014 that Australia is among the world’s most expensive markets for clearing equity trades. 

“Adopting a stance that’s open to competition will bring the benefits of competitive discipline to the clearing and settlement market,” Morrison told reporters in Sydney. “A competitor may never emerge, or at least not for some time, so we need to ensure that there are also appropriate measures in place to deal with a market serviced by a sole provider.”

The changes pave the way for other market operators to offer a range of new products, said John Fildes, Sydney-based Chi-X Australia chief executive officer. 

“Now we need to have proper regulatory settings to make sure there’s a level playing field,” he said by phone.

National Interest

Under the planned ownership changes, the Treasurer will be able to approve an ASX shareholder owning more than 15 percent of the bourse, instead of a specific regulation being needed, according to a separate statement.

“This makes sense if they are going to compete globally,” Nathan Zaia, an analyst at Morningstar Inc., said by phone from Sydney. “It’s still going to take time to work out exactly how they will open it to competition. I’m not sure anyone is going to be looking to get in -- it’s still a small market.”

The changes were recommended by the Murray Financial System Inquiry to boost competition and flexibility across markets. Morrison said the national interest test would remain on any move to buy more than 15 percent of ASX.

Singapore Rejection

An attempted A$8.35 billion bid by Singapore Exchange Ltd. to buy ASX was blocked by Australia’s then-Treasurer Wayne Swan in 2011. The proposed takeover, which would have created the world’s fifth-largest exchange operator, was dismissed for being against the national interest. 

Another takeover remains a possibility, though the changes are more likely to see an overseas exchange buy a stake in ASX, allowing technology to be shared, said Morningstar’s Zaia.

“These are sensible decisions and in the best interests of Australia’s financial markets,” said Rick Holliday-Smith, ASX chairman and interim head. Former CEO Elmer Funke Kupper resigned this month after 4 1/2 years in charge as police investigate activities in Cambodia of the Australian betting company he formerly led.

The government said it supports ASX’s investigation into the use of blockchain technology. ASX has invested in Digital Asset Holdings LLC, a U.S.-based startup led by former JPMorgan Chase & Co. executive Blythe Masters, as it seeks to speed up the time it takes to clear and settle financial trades.

ASX shares rose 1 percent at 12:10 p.m. in Sydney, while the benchmark S&P/ASX 200 Index was little changed.

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