As the Aussie regulator opens debate on competitive clearing, the incumbent national exchange has raised concerns about how a multi-clearing house environment, including foreign clearers, might harm Australian market structure.
In a reply to the Australian Securities and Investments Commission's (ASIC) consultation on clearing andsettlement facilities, the Australian Stock Exchange (ASX) has used the national interest argument the country’s treasurer voiced when he banned the possible sale of the ASX to Singapore Exchange (SGX), as a reason to refuse clearing by foreign central counterparties (CCP).
The ASX warned that before a decision on a licence application from an overseas or domestic clearing house for cash equities listed on ASX, a full assessment of whether the public interest is served, including a cost-benefit analysis, must be undertaken.
When the country's Treasurer, Labor MP Wayne Swan, rejected the proposed merger between the ASX and the Singapore Exchange last year, he said: “It is in the national interest for Australia to maintain the ongoing strength and stability of our financial system, and ensure it is well placed to support the Australian economy into the future. It is important that we continue to build Australia’s standing as a global financial services centre in Asia to take best advantage of the benefits of our superannuation savings system”.
Invoking this statement, the ASX has told ASIC to weight such national intentions with the needs of market participants and fund managers, retail investors and public companies, before deciding whether the ASX clearer, the Australian Clearing House Electronic Sub-register System (CHESS), should face competition.
"ASIC must engage with these groups to establish whether they would have concerns if clearing took place overseas or, if there needed to be changes to the way the CHESS system or settlement operates, before the treasurer can consider the public interest implications of granting a second clearing house licence to clear ASX-listed securities," wrote the ASX.
"There is no evidence that ASIC has outlined the potential difference in outcomes to end investors or established if they would have concerns if their trades were cleared through an overseas clearing house," continued the ASX, adding that adjusting market structure to let foreign CCPs clear local stocks would not benefit the country in any way.
The ASX believes "everybody should be aware of the costs and benefits, and where this will position Australia in Asia and in the future."
The ASX warned Australian regulators needed to have powers to preserve financial stability and that any change to the structure of clearing and settlement would increase operational risk.
"In the more serious circumstance of a failure of a CCP there needs to be clear and unambiguous step-in arrangements for Australian regulatory authorities to ensure the continuous operation of the facility and to protect the interests of the facility’s customers and Australia’s financial stability," said the clearing-house-owning bourse.
The exchange also lobbied the watchdog that it believed a high burden of proof needed to be satisfied before major changes are made to how Australia’s financial markets operate.
"This is particularly the case where any additional risk is to be measured against the modest gross benefits that may emerge through lower facility fees,” argued the ASX, adding that its own calculations showed gross benefits of AU$12.5-25 million in the case of equity clearing competition, against annual costs of AU$30 to support a dual CCP structure.