South Australia’s stock exchange is to see more competition from late 2011 in a move that is set to boost investment and develop the country as a regional financial hub, creating jobs and impetus.
Takeover target ASX Group is set to lose its two-decade monopoly later this year after Australia’s securities regulator opened the door to competition from Nomura’s Chi-X.
Competition from electronic trading platforms like Chi-X has spurred a string of global exchange mergers, including Deutsche Boerse’s bid for NYSE Euronext, London Stock Exchange’s bid for Toronto Stock Exchange parent TMX Group and Singapore Exchange’s $7.7 billion bid for ASX.
Mark Nathan, portfolio manager at Arnhem Investment Management, said the entry of offshore competitors strengthened ASX’s case for the merger, which faces opposition from some local politicians fearing a loss of control over the bourse.
‘In the light of competition, participants in the industry should be able to respond accordingly, whether that means partnering or even being taken over,’ Nathan said.
ASX said in a statement it was well positioned for competition, and the prospect of global exchange operators entering the Australian market reinforced the rationale behind its proposed tie-up with Singapore Exchange.
Chi-X, a wholly-owned subsidiary of Chi-X Global, got an in-principle market licence in Australia almost 12 months ago, and had targeted a launch date about October 2010 but was delayed by a handover of powers to the regulator and a general election.
‘The introduction of Chi-X in other markets has attracted substantial additional liquidity, new market participants, reduced trading costs, and improved and deepened the market infrastructure and capacity. We are confident Chi-X will deliver similar benefits to Australia,’ said Chi-X Australia chief operating Officer Peter Fowler.
The initial rules governing Chi-X’s entry into the market will be released by April, and if the company can confirm to the Australian Securities and Investments Commission (ASIC) that its systems are in place by the third quarter, it will be allowed to operate from October at the earliest.
‘The timetable also depends on market operators and market participants taking all necessary steps to get ready for competition over the coming period,’ said ASIC Commissioner Shane Tregillis.
Chi-X is expected to target the execution of large wholesale trades, which account for about a third of all trade, rather than company listings but is unlikely to make swift inroads into ASX’s dominance, Arnhem’s Nathan said, as ASX has had ample time to prepare with its products and pricing.
The Australian government welcomed the timetable, saying competition was essential to develop Australia into a financial services hub.
‘Competition is good for the equities market, good for Australian and overseas bourses,” he added.