ASX defends monopoly position

The ASX chairman, Maurice Newman, and its chief executive, Robert Elstone, yesterday used recent market turmoil to underline the importance of the exchange's monopoly position. They also suggested it could be forced into a merger with an overseas exchange.

Mr Newman's comments at the annual general meeting of the ASX were his farewell salvo as chairman after 14 years. His departure, and the appointment of David Gonski as his successor, come at a critical time.

The Federal Government is looking at allowing other market operators to compete with the ASX. And the exchange is under pressure after the Australian Securities and Investments Commission banned short selling for a month, which has resulted in a in trading volumes.

Mr Newman made a compelling case for not investing in equities. "Losses on the world's top-20 markets, since the start of 2008, have reached $US13.3 trillion - the combined GDP of Japan, Germany, Canada, Spain and Australia," he told shareholders.

But he leapt to the defence of the ASX in a year of unprecedented market turbulence. "Much of the time we spend is separating falsehood from truth. And because Mr Norris or because Mr Cloney or because RiskMetrics say something doesn't make it true," he said, referring to suggestions by the Commonwealth Bank chief executive, Ralph Norris, and the QBE chairman, John Cloney, that its split role as a for-profit company and operator of the market left the exchange with a difficult conflict of interest.

Mr Newman said the ASX had been criticised for failing to supervise areas outside its responsibility, for not managing its conflict of interest when it had clinically separated its supervisory and commercial arms, and for devoting scant resources to monitoring the market when it was adding staff to the area.

He and the chief supervision officer, Eric Mayne, defended its policy of not forcing satellite trusts of Macquarie Group and Babcock & Brown to disclose the cost of management links with their parent entities.

The founder of crikey.com.au, Stephen Mayne, a defeated candidate for the ASX board, and the advisory company RiskMetrics have argued that the full text of management agreements should be disclosed - as in the US.

RiskMetrics advised shareholders yesterday to vote against the return of director Russell Aboud - but the protest vote was limited at 9.4 per cent. Trevor Rowe also returned to the board.

Mr Newman and Mr Elstone said more competition could undermine the efficiency of the country's equity market. They said the entry of such rival exchanges as the Chi-X or the New Zealand Stock Exchange-controlled AXE would dampen liquidity and add to volatility.

On other matters, Mr Elstone said it was too early to know the cost of the short selling ban, and that in five to 10 years emissions permits and their derivatives could develop into an native asset class.

The chief executive of RiskMetrics, Dean Paatsch, said the ASX could retain its supervisory role but needed to do a better job.

Market report - Page 30