Focus shifts to tech investment as ASX retains monopoly

The Australian Stock Exchange has reaffirmed its commitment to investing in clearing and settlement technology infrastructure, after the Government yesterday confirmed it would retain its monopoly on cash equities clearing and settlement for at least the next two years.

Treasurer Wayne Swan said the Government had accepted the recommendations of the Council of Financial Regulators, following a consultation process in the second half of last year.

“The advice of the Council… is that while competition would be expected to deliver efficient outcomes, now may not be the appropriate time for changes that will have further cost implications for the industry, given current market conditions and the magnitude of regulatory change already underway,” Swan said in a statement.

Market participants, including the ASX, had argued new entrants in clearing were likely to cause significant upfront and ongoing IT costs for everyone involved.

ASX chief Elmer Funke Kupper welcomed the decision and said the ASX was making substantial investments in its clearing and settlement infrastructure.

"ASX...is committed to deliver a world-class financial infrastruvture for Australia," Kupper said in a statement.

He cited the company’s new service that will allow ASX clients to optimise the use of their available collateral as one example.

The collateral management service will leverage existing technology provided by Clearstream Banking SA.

The ASX is also building an over-the-counter derivatives clearing service for Australian banks. UK-based LCH.Clearnet was seeking a licence to allow it to offer a similar service, but today’s decision will end that ambition.

Last year the ASX revealed it would compete with the likes of Equinix and Global Switch to provide data centre services to rival exchange Chi-X.

In its submission to the Council of Financial Regulators, Chi-X said competition in the delivery of financial market infrastructure was crucial to the development of “world class cost effective” financial market services in Australia.

Chi-X management believes settlement should be operated as a public utility, but that clearing should be opened to new competition, arguing clearing competition in other markets has brought innovation.

Chi-X declined to comment on the Government's decision.