Ticker glitch, rising competition deepen woes for Australian bourse

[SYDNEY] ASX is grappling with rising regulatory pressure and intensifying competition, as shares of Australia’s main exchange operator trail most of its global peers.

In just two days, a bungled market announcement, a threat to its long-standing dominance and surprise expenses tied to an ongoing regulatory probe dented confidence in the exchange and heaped more pressure on chief executive officer Helen Lofthouse. Its stock tumbled 8.6 per cent on Thursday (Aug 7), the most in two years.

It is a culmination of years of hitches at the ASX, including a botched technology upgrade to its clearing and settlement platform, that has led to a wide-ranging regulatory probe over failures in governance and risk management practices. Lofthouse and Chair David Clarke are facing demands for accountability over the shortcomings just as concern grows that the ASX is losing its prime position amid rising competition from rivals like Cboe Global Markets.

ASX’s litany of issues “suddenly challenges its reputation,” said Jun Bei Liu, founder of Ten Cap Investment. “For a defensive, quality, blue chip company as it used to be perceived, it’s in a whole lot of trouble.”

An expert panel has started work to analyse the firm’s governance and risk management practices after the Australian Securities and Investments Commission and the Reserve Bank of Australia highlighted “repeated and serious” failures.

Doubts over ASX’s operations have weighed on its shares. The stock is among the worst-performing global exchanges this quarter, with a 7.3 per cent drop that’s outpaced only by Brazil’s main bourse and India’s largest commodities exchange. It’s also the world’s most unpopular bourse among sell-side analysts, with the lowest consensus rating on a 24-member Bloomberg Intelligence gauge of security and commodity exchanges.

Several developments this week have added further caution towards the stock. On Wednesday, ASX incorrectly cross-referenced TPG Telecom’s ticker to a statement from Infomedia about a deal with private equity firm TPG Capital Asia, sparking investor confusion that sent shares of the Australian telecommunications company sliding. ASX cancelled early trades in TPG Telecom’s stock and said the problem was caused by “inadvertent human error.”

“ASIC has engaged with the ASX about the TPG Telecom error,” a spokesperson for the regulator said in a statement. “ASIC has requested the ASX to identify action to prevent issues such as this occurring again.”

Later that day, ASIC said it was in the final stages of considering a listing market application from Cboe’s Australian unit. The move would allow domestic companies to list on an exchange run by the US rival, threatening to end ASX’s local market domination.

Competition coming

Unlike some countries, Australia is not home to multiple listing platforms. ASX, formed in 1987 after legislation enabled the union of six independent stock exchanges that had operated in the states’ capital cities, is currently the only venue for public listings. In 1998, it became the first exchange in the world to demutualise and directly list itself. It now has a market capitalisation of about A$12.5 billion (S$10.5 billion) after shrinking by around a third from its all-time high in 2021.

Singapore Exchange’s attempted takeover of ASX was blocked in 2011, with the government at the time citing national interest reasons. Since then, while equities trading began on Chi-X before it was bought by Cboe, ASX has maintained a stronghold of public listings and on the lucrative derivatives market.

If approved, Cboe’s bid would “enhance competition and attract foreign investment, providing more choice for investors and greater international alignment,” ASIC said in a statement on Wednesday. Cboe Australia currently provides trading in ASX-listed securities and admits exchange-traded products through its own market.

India offers an example of how a dominant exchange can be disrupted by a new entrant. BSE, once the nation’s leading stock exchange, saw its market share rapidly decline after the launch of the National Stock Exchange of India in 1994, which introduced electronic trading. Institutional investors quickly migrated to the NSE, drawn by its modern technology. As a result, BSE, once the pre-eminent player, now holds only a single-digit share of the cash equities market.

Lingering concerns

Meantime, ASX CEO Lofthouse has pledged a revamp that would lift standards and support the long-term interests of the nation’s financial markets. Still, costs are mounting and the bourse on Thursday said it would incur as much as A$35 million in additional operating expenses related to the panel-led inquiry that’s due to report to ASIC by the end of March. The firm is due to deliver full-year earnings results on Aug 14.

While these are one-off fees, “we think this could lead to additional operational and risk management spend beyond” the current fiscal year, Morgan Stanley analysts led by Andrei Stadnik wrote in a note. BLOOMBERG