A year ago the high-powered Australian Financial Centre Forum released its report into what the federal government could do to help Australia become a leading financial services centre in the Asia-Pacific region, and reading between the lines, it’s clear the authors believed Singapore was the country to beat.
Now Singapore Exchange (SGX) is trying to buy the company that runs Australia’s stock exchange – a critical piece of economic infrastructure. Does this leave our finance centre ambitions in the dust?
The issue is crucial to the $8.4 billion deal, because it feeds directly into the question of whether the takeover of
It’s early days and while few stakeholders are yet to come down publicly on one side or another, the breadth of the issues at hand is starting to become clear.
“A stock exchange is a unique piece of national infrastructure," says
“An exchange lies at the heart of a country’s financial services industry, “ he says. The government will need to access “policy matters, the talent implications, the strategic implications long term, the competition issues. How will this impact listings and access to capital? How will it manage to bring forward innovation that we might see? We need to make sure that the wider set of interests and contributions which an exchange makes to a national economy aren’t being compromised."
The Australian Financial Centre Forum’s report contained 19 highly technical recommendations, likened by the forum’s chairman, Mark Johnson, to “scraping the barnacles off the boat", which quickly met the government’s approval. The report is filled with references to ways in which Singapore was making it easier for financial services firms to do business. It’s fair to assume having the ownership of the Australian stock exchange move to Singapore was not part of the vision.
But one of the report’s authors and Suncorp chairman
“What benefit does 100 per cent ownership of the exchange actually confer?" Story asks.
He concedes there would be grounds for concern if the integrity of the ASX’s trading systems were at risk under a new owner.
“But of the exchanges in our part of the world, the [Singapore] Exchange would be right up there with Australia. So I don’t think we’re putting at risk the reputation of the ASX or the confidence the market has in the administration of trading . . . On the other side, there is the opportunity to participate in a major integrated regional market and that is a significant plus."
In the world of finance where money zips around the globe in seconds, being integrated with other places would certainly be an advantage. But what makes a city a leading financial services centre in the first place? According to Fahy, it is scale and having deep and liquid markets across the full range of financial instruments, including equities, derivatives and currencies. It’s a place where “cluster effects" and feedback loops spark innovation, collaboration and more business.
The world’s top financial services centres are London, New York and increasingly Hong Kong. Whether exchanges have much to do with it, in each city the local exchange is owned locally, despite minority stakes.
In scale and depth, Sydney is well behind Hong Kong, so regardless of what happens to the ASX it’s only a pipe-dream that the city could be the biggest centre in the Asia-Pacific region.
But Singapore is Sydney’s competitor for second-tier status. One scenario is the takeover could lessen options for Canberra to work with the exchange to build Australia’s attractiveness as a financial hub. The Australian government has no equity interest in ASX, but the Singaporean government owns 23 per cent of SGX (although its shares do not come with votes and its stake will shrink to 15 per cent following the deal).
But Story says such fears have little foundation. While governments can remove impediments, there is limited scope for actual positive reforms to build a financial hub.
“It’s very difficult for governments to intervene to artificially create financial centres," he says. “The existence of a centre depends on the substance of the capital markets that are available and the calibre of the people that are involved."
The point about people is intriguing because it is people that make a financial services centre. Whether it’s executives working with others in London, commodity traders in Singapore, hedge funds in Hong Kong – attracting top people is part of the invisible, sticky web that attracts business.
The pressures on exchanges to merge are undeniable. Exchanges were once monopolies, but faster competitors are breaking into markets and stealing customers. Next year Chi-X is due to start competing with the ASX for investors to trade in ASX-listed companies. A vision of the future awaits the ASX in the London Stock Exchange, which now accounts for only about 60 per cent of trading its listed stocks. Chi-X has seized much of the rest. As ASX chief executive Robert Elstone said, “the era of purely domestic incumbent exchanges is fast disappearing".
The ASX needs a partner. If Hong Kong is becoming the Asia-Pacific region’s biggest financial sector, then arguably it would be more in our national interests to merge with Hong Kong Exchanges and Clearing, the owner of the region’s stock exchange.
When it comes to new listings, Hong Kong is were the action is. According to JPMorgan, in the 12 months to September 2010, listings grew by 8.4 per cent in Hong Kong, compared with drops of 2.2 per cent at the ASX and 0.3 of a percentage point at SGX.
But Hong Kong has never expressed interest in the ASX, whereas Singapore has long been keen to merge. As a result, ASX shareholders are getting a premium of 37 per cent on the value of their shares. But it’s a premium that might not be shared with the rest of the country.