By Caroline Henshaw
SYDNEY--Opening Australian equities clearing to competition
could threaten the stability of the country's financial markets,
according to the head of Australia's dominant exchange.
ASX Ltd. (ASX.AU) Chief Executive Elmer Funke Kupper told a
conference in Perth on Wednesday that allowing international
companies to enter Australia's clearing market, which would see the
ASX lose its monopoly on clearing and settlement, could lead to
critical functions of the local exchange being outsourced to other
jurisdictions.
In the speech to the Australian Institute of Company Directors,
Mr. Funke Kupper said the government should wait several years
before considering whether to push ahead with competition in
clearing in order to shield Australia from the turmoil afflicting
global financial markets.
Any decision to allow international companies to offer clearing
services, in which a third party guarantees contracts on an
exchange, would also mark a dramatic turnaround in the reasoning
that saw the government reject the Singapore Exchange's bid for the
ASX last year, he added.
"To allow clearing of Australian equities in a foreign country
would imply a policy change that would allow critical exchange
functions to be located overseas," Mr. Funke Kupper told the
conference.
"There seems to be a strong case to maintain the stability of
our financial markets for at least the next few years.
"What we do know is that no other major single financial market
has gone down this path--the United States, Canada, Singapore and
Hong Kong all have one clearing house and have no intention of
changing this."
Government bodies are expected to decide whether to open up
Australia's clearing and settlement market to competition in the
next few months. U.K. clearing house LCH Clearnet, which is owned
by the London Stock Exchange, has already expressed an interest in
the market.
Australia last year allowed competition in the share market for
the first time with the arrival of Nomura-backed Chi-X. Mr. Funke
Kupper said that competition had yielded few of the touted
benefits--including lowering trading fees and boosting
liquidity.
Instead, he argued that the change has encouraged the
proliferation of high frequency trading, which use computers to
trade shares in fractions of a second, and the expansion of
off-exchange trading, known as dark pools, that are currently
threatening the stability of Australia's financial markets.
"It is actually an extraordinary story," he said. "We have
delivered higher overall costs, and we have not advanced our
position in Asia."
Write to Caroline Henshaw at caroline.henshaw@wsj.com
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