Australia delays decision on equities clearing competition for two years

Treasurer Wayne Swan: Six months to work on a code of practice. — Reuters file picTreasurer Wayne Swan: Six months to work on a code of practice. — Reuters file picSYDNEY, Feb 11 — The Australian government is delaying a decision on opening the country’s equities clearing facility to competition for two years, extending the monopoly of stock exchange operator ASX Ltd.

Treasurer Wayne Swan said today the ASX had agreed to develop a code of practice within six months to ensure transparent and non-discriminatory access to its infrastructure in the interim.

So far, only European clearing house LCH.Clearnet has applied for a licence to provide rival equity clearing services in Australia. London-based LCH.Clearnet was not immediately available for comment.

Concerns about relinquishing control of the nation’s clearing and settlement systems was a major reason cited by Swan when he vetoed an US$8 billion (RM24.6 billion) takeover bid from Singapore Exchange for ASX in 2011.

That scuppered ASX’s plan to join a wave of mergers in recent years between exchange firms around the world as traditional operators try to cut costs and boost their offerings to fend off growing competition from alternative trading platforms and so-called “dark pool” operators that link anonymous buyers and sellers.

The ASX deal with Singapore would have bolstered the Australian bourse against the October 2011 launch of the Chi-X platform, owned by Nomura, which ended the ASX’s two-decade monopoly.

The Council of Financial Regulators will review the new Code of Practice at the end of the two-year period and consider whether a new entrant should be permitted.

Chi-X signed a five-year deal with ASX Clear at its start-up, but stressed the agreement was non-exclusive and it would welcome the opportunity to use a different clearing house.

In a bid to dissuade defectors to a potential rival, ASX this year began sharing half the extra revenue it makes from its trading, clearing and settlement business with customers in a scheme to last three to five years.

ASX chief executive Elmer Funke Kupper said today the existing settlement system was “efficient, well-capitalised and well-regulated”, adding the ASX was making investments to strengthen Australia’s position in Asia.

That includes the launch of the clearing of OTC-traded derivatives this year. Today’s decision applies only to the clearing of cash equities and does not extend to clearing and settlement services of either exchange-traded or OTC derivative markets or debt markets.

There was A$14.8 trillion (RM47 trillion) of trade in OTC derivatives last year, against A$1.1 trillion of turnover in equities, suggesting a lucrative market for both ASX and LCH to pursue.

ASX shares were up 0.45 per cent at A$36.11 in early trade. The stock has risen 18 per cent over the past year, just ahead of a 16 per cent rise in the S&P/ASX 200 index. — Reuters


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