MARKETS SPECTATOR: ASX 'supermarket' strategy

Tomorrow ASX Ltd begins to offer trading in government bonds, part of Elmer Funke Kupper’s strategy to be all things to all investors.

Elmer Funke Kupper wants a supermarket. Or more precisely, he wants the ASX to be one. Tomorrow 22 Australian government bonds, soon to be 23, will trade on ASX Ltd. More than 150 years since its origins the ASX has indeed come a long way. It now has $2.6 trillion of securities sitting on its systems.

“We want to give Australian investors the widest range of investment options,” Funke Kupper told Markets Spectator. Bond trading may make no discernable  difference to ASX Ltd’s bottom line but Funke Kupper says it is a “foundation stone” in making the company the premier market for stocks, derivatives and bonds.

Funke Kupper throws off optimism. He says the technology failure that plagued the first days of his tenure are a thing of the past. ASX Ltd’s systems uptime availability rate – the amount of time the bourse’s trading platform is available  – is 99.8 per cent. Still, he acknowledges that some of the ASX’s systems are older than others and adds that when dealing with complex hardware and software nothing is “risk free” or “straightforward”.

Funke Kupper rails against so-called ‘dark pool’ trading. “Everything should go to the lit market,” he says, estimating that as much as 30 per cent of total ASX equity trades are conducted through dark pools. Only when the trades are sufficiently large or an investor gains a “material benefit” should ‘dark pool’ trading be used, Kupper says. Dark pool trading is often conducted off exchange and matched anonymously two buyers. Meanwhile, lit trading serves the public good, argues Kupper. Price discovery is immediate, the integrity of the security’s price is not questioned and companies and the public can value equity immediately and over time.

The ASX chief says there is no pressure to further narrow the bid-offer spread from fund managers or companies. The bid-offer spread is one cent for securities that cost more than $2 and half a cent for securities under $2.

Funke Kupper says while trading volumes have not kept pace with the rise in the S&P/ASX 200 Index over the last year, 27 per cent, trading volumes are now breaching $5 billion compared with about $4 billion last year. That is proof that individual investors are coming back into the market, according to Funke Kupper. ASX’s revenue growth was up 9 per cent in the three months to March compared with a year ago, he says. But whether the market is just now reaching its peak (the S&P/ASX 200 Index is trading above its 20-year forecast earnings average) is something Funke Kupper won’t be drawn on.

ASX Ltd shares have gained 34 per cent in the last 12 months.

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