ASX wins reprieve on competition

THE major stockbroking houses have said they still want to see competition introduced in clearing and settlements so that prices come down, as the dominant exchange operator was given a reprieve on moves to open up the lucrative clearing business to competition.

Federal Treasurer Wayne Swan on Monday said he had accepted advice from the Council of Financial Regulators to delay by two years a decision on whether to introduce competition in the clearing and settlement of the Australian equity market. While it was expected that competition would deliver net benefits to market participants, now was not the time to do so, Mr Swan said.

The Australian Stock Exchange would instead be required to adopt a code of practice in the next six months to minimise any negative consequences from its monopoly, with the code to be reviewed after two years.

It would also have to publish detailed statements of its equity clearing and settlement services.

A report by the Council of Financial Regulators said that, while many stakeholders agreed that competition for the clearing of equities could be expected to deliver benefits, "there was scepticism around whether those benefits would outweigh any associated costs".

"A clear theme from consultation with stakeholders was the currently difficult market conditions could exacerbate the impact of any operational and regulatory costs associated with the introduction of competition in equity clearing at this time," the report said.

Deutsche Bank analyst Kieren Chidgey said the decision could be "chalked up as a win" for the ASX, but it was unlikely to deliver a large boost in profits to the company.

"Should ASX's equity clearing monopoly be preserved in two years' time when the issue is revisited, there remains the risk of greater regulatory intervention, which could impact control or pricing," Mr Chidgey said.

But the head of the ASX, Elmer Funke Kupper, welcomed the decision. "ASX will work with industry stakeholders to develop a code of practice for its clearing and settlement services, and is committed to deliver a world-class financial infrastructure for Australia."

Chi-X Australia, the only rival to the ASX, and which spent much of last year arguing for the need to introduce competition in Australia's clearing and settlement services, did not comment.

Commonwealth Bank analyst Ross Curran said the decision was a "very good one" for ASX shareholders because it allowed the monopoly position to remain intact. "It's a positive for shareholders, but probably not such a good thing for your local stockbroker."

The Council of Financial Regulators is the co-ordinating body for the country's main financial regulatory agencies. Its members include the RBA, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the Treasury.