Australia market major backs plan to break ASX monopoly on post-trade functions

By Byron Kaye

SYDNEY (Reuters) – A top Australian share trading technology firm backed a government proposal to break stock market operator ASX Ltd’s effective monopoly over clearing and settlement, saying its failed software overhaul showed the need for new entrants.

In draft legislation published this week, the federal government said it wants to give potential rivals to the ASX’s clearing and settlement operations the same access to financial market infrastructure.

The new rules would also give the Reserve Bank of Australia and the Australian Securities and Investments Commission, which jointly regulate the ASX, greater oversight of clearing and settlement providers to stop dominant players pushing out competition.

“We encourage anything that encourages innovation,” said David Ferrall, CEO of trading technology platform FinClear Pty Ltd, which is involved in settling about half of the ASX’s retail trades.

“One of the main reasons we haven’t seen competition come into the Australian market is because that ASX and CHESS capability has been so dominant and there hasn’t really been enough revenue or a business case for someone to recreate CHESS,” Ferrall added, referring to the ASX’s Clearing House Electronic Subregister System.

Though Australian financial regulators have called for greater competition in clearing and settlement functions for years, a failed overhaul of the ASX’s all-in-one legacy software system has renewed pressure from market participants to challenge its near-monopoly.

In other major financial markets, clearing and settlement, or confirming the transfer of stock ownership and updating share registries, are managed by separate entities to the market operator.

An ASX spokesperson said the company wanted to work through the detail of the reforms with government and regulators.

“ASX is open to ensuring there is a clear regulatory structure in place to provide competition in clearing and settlement services, and supportive of strong regulatory oversight of critical financial market infrastructure for all of the entities that provide these services,” the spokesperson said.