ASX Clearing System Causing Heartburn for Regulators
The oversight and control of the ASX’s back office clearing operations are emerging as sore points among politicians and regulators.
These are the people who must approve the proposed $8.4 billion takeover of ASX by its Singaporean counterpart.
Clearing, the process of matching up trades with counterparties to make sure settlement takes place, is a lucrative element of ASX’s franchise. If it changed hands with the SGX deal, as is clearly intended, it would possibly be a world first.
As Macquarie Equities analyst Michael Wiblin put it in a note yesterday, “the ASX-SGX case differs from previous cross-border acquisitions such as Nasdaq-OMX and NYSE-EuroNext in that unique components of the nations’ payments systems were not sold”.
Monday’s joint announcement made it clear that ASX and SGX would remain separate legal and locally regulated entities. It also noted that the two would “build on existing distribution and clearing capabilities” without elaborating on exactly what that might mean.
As Mr Wiblin put it, “ASX . . . will end up selling what is effectively Australia’s only equities and derivatives clearing and settlement infrastructure as part of the acquisition. This hasn’t happened to the same degree in an acquisition on an exchange globally as yet.”
Elsewhere, there were greater competition and fragmentation for clearing and settlement than in Australia, he added.
In summary, ASX shareholders are being asked to sell a well-tried local monopoly system that identifies who’s selling and who’s buying in every share and derivatives trade in Australia. Back office experts in Australia are concerned to make sure that information stays onshore if the deal goes through.
“We know that the Singapore authorities are particularly sticky about not allowing information about trading and clearing to reside outside their domicile,” one Australian back office manager said yesterday.
An irony of the transaction is that ASX has recently overhauled its clearing business, which last year earned $31 million, compared for instance with $18m in 2006, to accommodate new competitor Chi-X. It is Chi-X’s looming arrival that is widely considered to be a reason for the merger taking place.
ASX recently renamed the arm ASX Clearing Corporation and, as chief executive Robert Elstone stated in the ASX’s latest annual report, “this will facilitate Chi-X’s application to become a licensed market operator for ASX-quoted securities”.
Source: The Australian