Australian Securities Exchange chief executive Elmer Funke Kupper has successfully argued that the benefits of opening up a second clearing and settlement system would be outweighed by the increased operational risk. The tenets of economic theory and the benefits of competition, along with the chances of ASX Ltd becoming a takeover target again, fill this morning’s bottle from The Distillery.
The Australian Financial Review’s Nabila Ahmed proclaims that Funke Kupper’s "long, loud and at times scare-mongering campaign has worked”.
The Australian’s John Durie explains how the ASX successfully argued that the increased cost of a separate equities clearing house outweighed the potential benefits. Then again, it would say that, wouldn’t it?
"Vested interests loom large in this debate, which explains why the big brokers argue the Australian market is too small to justify competing equities clearing houses and market operators. Economic theory would suggest otherwise given that, in principle, small markets derive the same benefits from competition as large markets. The conspiracy theorists were quick to note former treasury head Ken Henry's appointment to the ASX board has met immediate success, but this presumes the delay on opening the clearing market is permanent. There is nothing to suggest there is and, in fact, arguably now may be the time for Funke Kupper to dust off those merger files. Armed with a clearing house monopoly, for the moment, gives him some real fire power to shop his house around.”
Fairfax’s Adele Ferguson goes beyond the word ‘arguably’ in relation to ASX’s potential as a deal candidate.
"Consolidation of exchanges was put on hold during the GFC. But in the past 18 months it has returned with gusto as exchanges look for ways to keep up with their clients – including central banks, governments, hedge funds and pension funds – that demand cheaper and faster trading systems. Changes in regulation and the rise of derivatives is adding to the charge. Put simply, these factors, including globalisation, are presenting all exchanges with a stark future: link with a powerful foreign counterpart or slide into insignificance.”
Ahmed contests that offshore administration remains an issue and the Council of Financial Regulators has just prevented competitors from setting up shop in Australia.
Business Spectator’s Stephen Bartholomeusz also notices this apparent impasse, though he’s also in step with Ferguson that the stronger understanding of the government’s position on this could make ASX more of a conceivable target.
Still, the outstanding issue is of course that in two years' time, we could be back in a situation where the monopoly is overturned.
"The council hasn’t closed the door permanently on the prospect of competition in clearing and settlement but it has deferred any notion that it might open soon. It has recommended, and Swan has accepted, that a decision on any licence application from a central counterpart seeking to operate in Australia should be deferred for two years… If the ASX is half-sensible the conclusion in two years’ time would be the same as it is today – that the prospective gains aren’t sufficient to countenance the likely costs and risks. While it is conceivable that the market environment might be a more positive one than it is today it is improbable that the level of cost reductions competition might produce will be materially different to what they might be today or that the costs and risks would somehow have reduced in the meantime.”
Bartholomeusz also neatly sums up the positions of many of this morning’s commentaries on ASX when it comes to the issue of increased competition being a hindrance.
"Competition is generally a good thing, as long as the benefits it delivers outweighs the costs and risks associated with it.”
In other news, Fairfax’s Elizabeth Knight wasn’t surprised that investors, for so long disappointed by the retail numbers, took to the latest set of JB Hi-Fi figures. Not because they were good, but they weren’t bad, which means in this market that they were good.
"This response is the best evidence to take that we are in a bull market cycle – by definition ignoring the downside and responding to positive news. On the back of the JB Hi-Fi result for the six months to December 31 and some positive outlook for the remainder of the financial year, a bunch of retailers' share prices rode on its coat-tails. Harvey Norman, Myer and David Jones rose variously 6 per cent, 3.47 per cent and 3 per cent. If these companies don't match up to expectations, they will be dealt with accordingly as their results dribble out over the next couple of weeks. But as far as the market is concerned JB Hi-Fi is the one swallow that does make the summer.”
Such a beautifully employed saying, Knight gets top marks.
The Australian’s Andrew Main has got his hands on a report from Mercer indicating that Australia already hits retirees hard, which puts into context the danger the government is playing with when it comes to taxing superannuation harder.
"Consulting group Mercer came out with a report yesterday which said six of the eight most sophisticated countries in the world have tax systems that are kinder to retirees than ours. It said Canada, Chile, The Netherlands, Switzerland, the US and Britain all have tax regimes that are more generous towards retirement savings. The only countries below us on that ranking, admittedly among the nine countries that Mercer says have the best retirement systems in the world, are Denmark and Sweden. It then threw in that those two countries, which tax their populace harder than our ATO does, have more generous state pensions than Australia's.”
The Australian’s Barry Fitzgerald writes that the valuations of iron ore hopefuls in the Pilbara that don’t have access to rail and port infrastructure have been cruelled recently.
"No production, and no near-term prospect of production because of infrastructure shortcomings, and the capital drought for new projects means they are likely to continue to flounder.”
In other company news, The Australian Financial Review’s Chanticleer columnist Tony Boyd anticipates that new Stockland chief executive Mark Steinert will announce residential property impairments in the order of $200 million when he fronts investors tomorrow.
The Australian Financial Review’s Matthew Stevens describes the reaction of Fortescue Metals Group to its loss at the Australian Competition Tribunal as "relatively subdued disappointment”.
The long campaign by Fortescue founder Andrew ‘Twiggy’ Forrest to gain access to Rio Tinto’s rail infrastructure in the Pilbara could well have come to a conclusion.
And finally, Fairfax’s Michael Pascoe names James Packer’s performance on Channel Seven’s Sunday Night program to be the Public Relations Institute of Australia's Golden Target award winner for 2013.