MARKETS SPECTATOR: Raising ASX Ltd's performance

If ASX chief executive Elmer Kupper wants to impress his customers, he will use some of the $539 million Australia’s market operator plans to raise to invest in Chess.

Chess enables brokers, custodians, fund managers and settlement agents to settle trades made by themselves or on behalf of clients. Chess registers the ownership of shares.

The problem is that Chess is old - very old. Chess’s software is written in COBOL. It dates back more than 20 years, according to one trader. It needs to be replaced and soon in order to mesh better with those systems written by whiz bang programmers hired at great expense by Wall Street.

The mish mash of some of ASX’s antiquated software and hardware with the company’s newer systems and those of the outside have caused problems including market shutdowns in the past. Kupper has told Markets Spectator these problems have been largely fixed. Others aren’t quite so sure. 

Meanwhile, the ASX is showing little bottom line growth. Today it said net profit for the 12 months to June 30 will be largely unchanged from the previous year at $346 million. That is despite a 17 per cent gain in the S&P/ASX200 Index between July 1 last year and May 31 this year, according to Bloomberg data.

The market has just not turned over as much in the 11 months to May 31 this year as it did in the same period a year earlier when ironically it was classified as being in the doldrums.

The velocity of cash market trading, the value of trading turnover as a percentage of the market’s total value, has dropped to 85 per cent in the 11 months to May 31. That compares with 98 per cent in the 11 months to May 31, 2012.

Some of the turnover may have gone to Chi-X, which began competing with the ASX in November last year. Some of it may have gone to so-called dark pools that anonymously match buyers and sellers of stocks, typically large blocks of trades that may be as much as hundreds of millions of dollars.  

In the 11 months to May 31, the ASX’s own dark trading pool, Centre Point, had $33.52 billion worth of trades. In the 11 months to May 31, 2012, Centre Point had $17.8 billion worth of trades.

The ASX be breeding a beast. Regulators and the government are pushing dark pool operators to register with them in an effort to inject greater transparency into the market. But the ASX as a licensed operator of the cash, futures and options market for both stocks and bonds in Australia, may be escaping that scrutiny. Not for long. Wall Street will be using Centre Point’s latest data to ask why is the latest data from Centre Point seemingly at odds with the Kupper’s desire for trading to be in the lit market? And why doesn’t the ASX chief executive devote more of his budget to updating software so it can perform better in the 21st century?

At 1027 AEST ASX shares were down 30 cents, or 0.8 per cent, to $35.84. The S&P/ASX200 Index was up 12.397, or 0.3 per cent, to 4750.10.