Australian Securities Exchange

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Australian Securities Exchange
ASX logo.gif
Founded July 2006
Headquarters Sydney, Australia
Key People Dominic Stevens, Managing Director and CEO; Ramy Aziz, CFO; Peter Hiom, deputy CEO; Rick Holliday-Smith, non-executive chairman
Products Cash equities and warrants; futures on equity indexes and single stocks, interest rates, wool, grains and electricity; equity and index options; and CFDs
Website http://www.asx.com.au

The Australian Securities Exchange (ASX) is a multi-asset class exchange formed in 2006 by the merger of the Australian Stock Exchange and the Sydney Futures Exchange, combining cash equities with one of Asia’s largest derivatives operations. The exchange was the first to go public among global exchanges in 1998.

The ASX ranked as the 20th largest derivatives exchange in 2016, according to the Futures Industry Association's annual survey of the world's largest exchanges measured by volume. The report stated that the amount of futures and options traded on the exchange in 2016 increased by 3.6 percent on 2015's volume figure, to about 242.6 million contracts.[1]

The ASX is a member exchange of the World Federation of Exchanges.[2][3]

ASX opened a Hong Kong office on October 1, 2015, headed by ASX's Asia business development manager, James Keeley. The opening of the new office was designed to coincide with the establishment of a direct connection hub for ASX in Hong Kong.[4]

History and Merger

The Australian Stock Exchange announced its agreed cash-and-stock offer for the SFE on March 27, 2006, seven years after an abortive takeover was blocked by domestic antitrust officials and the futures exchange walked away from a rival offer.

The offer of 0.51 stock exchange shares for each SFE share valued the futures exchange at A$2.3bn, and was priced at 31.5 times 2006 earnings and a 25 percent to its average level over the previous 30 days.[5] The transaction closed on July 26, 2006, and the new ASX was officially formed in December 2006.[6]

The legacy exchanges have a track record for innovation, and were among the first to demutualize, list their shares and switch to all-electronic trading, which ASX now offers on a 24-hour basis. The new exchange is a leader in the fast-growing markets for contracts-for-differences (CFDs). Futures and options volumes for the new exchange rose 16 percent to 92.7m contracts in 2007, while cash market business rose 44 percent to A$1,600bn.[7]

In 1998, the ASX became the first large exchange to demutualize and list its shares, while the SFE demutualized in September 2000 and listed on the ASX in April 2002. The stock exchange traces its roots back to the creation of the Sydney Stock Exchange in 1871, which was combined in 1937 with a number of regional bourses to form the the Australian Associated Stock Exchanges. The SFE was started in 1960 as the Sydney Greasy Wool Futures Exchange, changing its name to the SFE in 1960.[8]

SGX-ASX Merger Failure

In late October 2010, it was announced that the Singapore Exchange (SGX) and the Australian Securities Exchange had entered into a merger agreement creating Asia's second largest Exchange group behind Hong Kong Exchanges and Clearing. SGX offered the equivalent of US$8.8 billion for ASX.[9] However, the Australian government stepped in and blocked the deal in April 2011, on national interest grounds. Australia's Treasurer Wayne Swan said the deal would harm its position as a financial center and would pose regulatory challenges to Australian regulatory sovereignty. It also was opposed by the Australian Securities and Investments Commission and the Reserve Bank of Australia.[10][11]

There were several other reasons the deal was rejected. One was that the 23.5 percent ownership stake in SGX that was held by Temasek, Singapore's government-owned investment agency. In the eyes of the Australian government, that potentially could have weakened Australia's position as a regional financial hub and would not improve Australia's access to Asian markets. The Australian government also was concerned over clearing and settlement issues with a foreign owned exchange and was uncomfortable with a smaller foreign equity market purchasing a much larger domestic exchange. ASX's market capitalization for all entities listed on the exchange at the time was $1.5 trillion, ranked 11th in the world, versus $672 billion on SGX, which was ranked 21st. The logic was that a smaller equity market would not have provided any advantage for Australian listed companies, or capital raising efforts in Australia.[12]

Structure and Regulation

The exchange operates under a self-regulatory regime, overseen by the Australian Securities and Investments Commission and the Reserve Bank of Australia.[13]

The parent ASX Ltd is listed on its own exchange, and incorporates a clearinghouse for exchange-traded and OTC cash and derivative products.

Key People

Product Development

The SFE complex spans futures and options in equity, interest rate, agricultural and energy products, with volumes rising from 72.4m to 82.8m in fiscal 2007. The average fee per contract dipped from A$1.45 to A$1.39. Volumes in the smaller legacy ASX complex of futures and options dipped from 23.1m to 22.9m.

Australian Treasury futures dominate the SFE complex, which has been expanded to include a New Zealand government bond contract. The SFE SPI 200 equity-index is the fourth most heavily-traded contract. Agricultural futures include wool and live cattle.

The ASX also offers wool futures and options in an agricultural complex which includes wheat, barley, canola and sorghum. Financial products include futures on the benchmark S&P ASX 50 and 200 indexes.[14]

ASX offers clearing of over the counter interest rate swaps through its ASX Clear clearing house.

In November 2014 ASX purchased a 49 percent stake in Yieldbroker, a firm that operates electronic markets in trading Australian and New Zealand debt securities and interest rate derivatives. Yieldbroker’s markets include Australian government and semi-government bonds, treasury notes, corporate bonds, floating rate notes, New Zealand government bonds, interest rate swaps, overnight index swaps, forward rate agreements and bank bills. ASX invested $65 million in the deal.[15]

In April 2015, ASX signed a memorandum of understanding (MOU) with the China Futures Association to collaborate and promote the development of China's derivatives market. The initial term of the MOU is five years.[16]

Technology

On June 8, 2010, ASX announced that they had deployed a new hosting solution with Equinix in Chicago to offer their US-based clients direct access to the Sydney Futures Exchange and it's suite of products.[17]

In February 2015 ASX launched an overhaul of its technology systems, replacing its entire trading and post-trade systems over a 1 - 2 year period. The first change was switching the exchange's equities and derivatives systems from one provided by Nasdaq OMX to another provided by Cinnober. The first phase is expected to cost $35 million over two years.[18]

Contract Volume

Year Total Annual Volume Percent Change
2016 242,625,869 3.6%
2015 234,181,853 (-)4.1%
2014 244,070,858 (-)6.8%
2013 261,790,908 .7%
2012 259,966,030 15.4%
2011 225,353,623 111.8%
2010 106,385,077 29.4%
2009 82,200,578 --

2016

Exchange Volume Percent Change
ASX 102,039,243 (-)4.2%
ASX 24 140,586,626 10.2%
ASX Group 242,625,869 3.6%

References

  1. FIA annual global derivatives survey 2015. FIA.
  2. 2010 Annual Report & Statistics. World Federation of Exchanges.
  3. Members. World Federation of Exchanges.
  4. ASX sets up Hong Kong base to drive expansion. The Trade News.
  5. Merger Agreement. ASX.
  6. Press Release. ASX.
  7. Press release. ASX.
  8. Official History. ASX.
  9. SGX-ASX talk merger; to be 5th largest exchange group. Commodity Online.
  10. Australia defends blocking ASX-SGX deal. Reuters.
  11. Australia confirms rejection of SGX-ASX deal. FT.
  12. ASX Takeover: Learning from Rejection. Australian School of Business.
  13. Annual Report 2007. ASX.
  14. Annual Report 2007. ASX.
  15. ASX Completes Investment In Yieldbroker. Press Release.
  16. ASX and China Futures Association sign MoU. Automated Trader.
  17. Australian Securities Exchange Launches New Hosting Solution, Offering US-Based Clients Direct Access to Its Futures Market Via Equinix. BusinessWeek.
  18. Australian Exchange launches technology overhaul. The Financial Times.