Port sale sees Whitlam's boat come in

FOR Nick Whitlam, son of Gough and former merchant banker and chairman of the NRMA, confirmation by the O'Farrell government that the state-owned port he has chaired for the past seven years will be sold to the private sector is a moment to celebrate.

FOR Nick Whitlam, son of Gough and former merchant banker and chairman of the NRMA, confirmation by the O'Farrell government that the state-owned port he has chaired for the past seven years will be sold to the private sector is a moment to celebrate.

The decision that Port Kembla Port Corporation will become the second container port in NSW - and that it will be sold separately for an estimated $500 million on a 99-year lease or in conjunction with the $2 billion-plus Port Botany - is designed to get maximum interest and top dollar.

From October the data rooms will be ready for what is expected to be a strong line-up of interested parties, believed to include the world's second biggest shipping company, China COSCO Holdings, shipping giant Maersk Group, the Indian conglomerate Adani, which is bankrolling a $10 billion coal project in Queensland's Galilee Basin, and the usual suspects of super funds and global infrastructure funds.

Asset sales are something all governments will need to go through as they hit their borrowing ceilings.

In the case of Port Kembla, the sale will set the asset free to allow it to fulfil its potential rather than being financially constrained by competing budget and political decisions. In addition it will dovetail with the NSW government's transport masterplan, to be released in November with a focus on freight.

Whitlam took the role as chairman of Port Kembla Port Corporation in 2005 and since then he has been lobbying for government funding or private sector interest to develop the port and rail track. He has succeeded to some degree, but in private hands and with access to private funding it would have had a far more dramatic transformation, including investing in a part-completed railway line dating back to Neville Wran's time as premier.

This is the Maldon-Dombarton railway line, abandoned half-completed by Nick Greiner's Liberal government when it came to power in 1988 as other capital projects took priority.

Port Kembla needs more than $1 billion to create a port similar in capacity to Port Botany and another $500 million to complete the Maldon-Dombarton rail line to link the port and city. This would provide an alternative export-import location to alleviate bottlenecks at Sydney and Newcastle. Port Kembla, which is one of NSW's three main international trade ports, is about 80 kilometres south of Sydney's CBD. The latest annual report said total trade through Port Kembla reached 33.6 million tonnes representing $13.5 billion in value.

Yesterday 11 ships were waiting to come into Newcastle and another 72 with "notified arrival time allocated and in transit", which is a tricky way of avoiding attention-grabbing headlines of bottlenecks. Many are ready to load but are forced to hang around out of the public glare.

A report released in the US on Friday into high frequency trading (HFT) has set the cat among the pigeons in the global equities markets as it challenges a number of studies that say HFT cuts costs for investors.

The report, released by Pragma Securities, has gone viral on the internet, as it picks up on a share trading phenomenon that remains a mystery - and a concern - to regulators and retail investors.

The old-fashioned idea of an exchange as a physical place where people come together to buy or sell shares is long dead. So too is the definition of what constitutes long term. Automated trading has grown rapidly as equity markets fragment across multiple venues.

It is now a technological race for survival as trading technologies make it possible to buy and sell shares in milliseconds - or less.

In the US more than 50 per cent of equities and derivatives volume is based on HFT, compared with Australia, where it is a relatively new phenomenon and accounts for an estimated 20 per cent of volume.

Globally, regulators are concerned that markets are being manipulated by computer trading, with many blaming HFT for the May 2010 flash crash in the US, when the Dow Jones fell 1000 points, or almost 10 per cent, only to recover within minutes.

The Pragma report argues that some of the most heavily traded US stocks might also be among the most expensive to trade. It puts a figure of $US2.5 billion a year on the cost to investors. It argues that the most popular stocks among high frequency traders, including Bank of America, Microsoft, Cisco Systems and Ford Motor Company, make it hard for long term investors to quickly buy and sell, which raises the costs for everyone.

"In contrast to the academic consensus view that high-frequency trading is benign, our research shows that there's a significant cost to the liquidity that they're providing," said Pragma's boss, David Mechner.

The report flies in the face of the typical argument that HFT reduces trading costs by making it easier for investors to buy and sell. It illustrates that costs initially fall as trading volumes rise but as average volume continues to rise, so do the costs and time to execute.

In Australia, where trading is drying up due to a lack of real volume in the actual markets, HFT can virtually push the market, or stocks, to positions it wants.

Trust in the financial markets is at an all time low. The financial markets are at a turning point. Technology, market structure and new products have evolved more quickly than regulation of the markets. Where and when it will all end, time will tell.