Singapore stock exchange's sharp decline in performance over the past six months makes the rejection by the Treasurer, Wayne Swan, of its $8.8 billion takeover for the ASX last April look clever, but for the wrong reasons.
Swan's rejection of the Singapore merger proposal was made on national interest grounds, much of it due to concerns about how much influence Singapore's government might exercise over Australia's financial markets, rather than any evaluation of likely financial outcomes.
On the other hand, Singapore Exchange's chief executive, Magnus Bocker, who had to deliver what can best be described as a flat half-year result to shareholders yesterday, must go to bed cursing Swan for what might have been.
Bocker's original offer of $22 in cash and 3.473 of his shares for each piece of ASX stock, equivalent to $48 a share then, would undoubtedly have been too high a price to pay - particularly as the last six months of 2011 (and early 2012) unfolded for global financial markets.
He now has a situation where the SGX's market worth has shrunk more than 30 per cent compared with a fall of only 12 per cent by the ASX since the two announced their merger proposal. During his lobbying for the ASX bid, Bocker frequently spoke of how the 23 per cent shareholding in SGX held by the government-related Temasek is passive. If that is so, he will be under no pressure to quickly right the ship.
Even so, the ASX is now valued by the market at $5.4 billion - 6 per cent more than it was before speculation of a marriage emerged in September 2010 - while SGX is worth less than $5 billion, a 17.5 per cent discount. Previously, the SGX had a $1 billion market premium to the ASX.
Had the ASX deal gone ahead, Bocker could have comfortably hidden the far deeper downturn in equities trading experienced by his group over the past six months (although many a local stockbroker suffering loss of hair, sleep and a job might contest that view).
Acquiring the ASX would also have reduced (although in some ways deepened because of Australia's weighting to resources) SGX's currently heavy reliance on equities trading for revenue generation because the ASX is, in spite of perceptions, less dependent on the cash volume in the equities market.
Securities trading on the SGX generated 38 per cent of its revenue in the half, down from 46 per cent in 2010, and 36 per cent in the December quarter.
That decline narrowed the gap between equities and the SGX's fast-growing derivatives business, which Bocker has been driving, that contributed almost 25 per cent of income compared with only 20 per cent a year ago.
The problem is that the gap is being narrowed more by equities trading attrition than growing contributions from other categories. The equities market, for the ASX, ranked only third of its divisions in revenue generation last financial year at 22 per cent of the total. Derivatives trading, at 28 per cent of revenue, and charges to those companies using the platform, at 24 per cent, were the bigger contributors.
That re-balancing of revenue sources for the ASX has to be seen in light of the effects of competition. The exchange sharply lowered its share trading charges in preparation for the arrival of the Chi-X platform - a recognition that its services there now have to be priced like a commodity, rather than a brand, so retaining volume by lowering costs to participants is more important.
Not unexpectedly, SGX tried to put the best face on its results by arguing that the effect of the 12 per cent drop in net profit from $S74.2 million ($55.74 million) to $S65.4 million in the December quarter was ameliorated by a good September quarter, so that the half-year outcome was a 3 per cent increase to $S152.9 million.
The previous year comparisons neatly avoid the fact that SGX charged $7.5 million against its 2010 accounts for the costs of the aborted merger. Adjust for that one-off charge and the December-quarter result was actually a decline of almost 20 per cent and the six month outcome is a fall of 1.9 per cent.
No wonder Bocker's formal statement was that he remained "cautious and focused on cost discipline" - although the largest cut to costs in the quarter and half was that the poor performance meant reduced share and cash bonuses, so that even with a growth in employee numbers at SGX, it managed to shave a net $S2 million in employee charges.
While all this is without the benefit of comparative ASX figures for the period, because it will not report until February 16, the raw trading comparisons show how much smaller, and vulnerable, is the SGX equities presence.
The average daily trading value in the December quarter fell from $S1.8 billion to $S1.1 billion - a whopping 40 per cent - while for the six months it was off 17.5 per cent from $S1.7 billion to $S1.4 billion.
The ASX trade value slipped from $5.19 billion to $4.38 billion for the December quarter. Over the half it was 4 per cent lower at $4.99 billion.
Again, that is hardly surprising, given that resources stocks are still keenly sought, for investment and takeover, which has helped bolster the local market against some pretty weak performances elsewhere - notably in the failure-riddled retail sector.
On current trends, ASX's new boss, Elmer Funke Kupper, might want to dust off the files and consider having his own bite at SGX this time around - that will test the passivity of Temasek.