ASX: Capitalising on market dominance

Being the 400 pound gorilla in an industry has its benefits, as ASX has discovered

a woman

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ASX Limited (ASX: ASX) has announced that it will be increasing its settlement fees from next month for the first time in seven years according to a report in The Sydney Morning Herald. CHESS holding statements fees will rise by 10% from $1 to $1.10.

The rise comes on top of an increase in other CHESS fees of between 20% and 50%. The company also increased settlement and administration fees last month by between 9% and 15%.

The ASX is increasing fees in products and services where it faces no competition, to offset lower trading volumes. In the first six weeks of 2012, trading value was down 19%, continuing the trend from 2011, where trading value fell 4.7%.

Entrenched market leader

Following a fall in overall market activity due to global issues, ASX's competitor Chi-X has taken less market share than originally estimated, since it commenced operations in October 2011.

Confirming its competitive advantage, ASX has also flagged the potential for further fee increases across its other products and services. The ASX has little or no competition in clearing and settlement, and therefore can offset lower trading revenue through an increase in fees in these areas.

After four months of operations, Chi-X market share remains less than 1% of the total market. In the UK Market, Chi-X had taken a 10% share of trading within a year, and moved to more than 30% after 4 and a half years.

ASIC ruling

According to another report in the Australian Financial Review (AFR), Chi-X has also been dealt a blow, with The Australian Securities and Investments Commission (ASIC) deciding yesterday to delay new rules requiring brokers to sign up to Chi-X. ASIC also said that brokers could side-step the new rules altogether, if they can show that there would be no benefit to their clients.

However, most major broking firms have already signed up to Chi-X, and the delay and possible reprieve only applies to retail stockbrokers. This could have repercussions in future, as more and more superannuation moves into Self-Managed Super Funds (SMSFs). Most super funds are treated as retail customers, and transact through online retail brokers.

ASX diversity

Chi-X is only competing with the ASX in trading, which represents less than 7% of the ASX's total revenue. Derivatives business (31% of revenue as at Dec 2011), listing and issue services (22%), clearing and settlement (15%) and data services (11% of revenue) remain a virtual monopoly for the ASX.

The Foolish bottom line

The ASX continues to dominate the stock exchange and securities trading markets in Australia and looks likely to do so for some time to come. Competing against an entrenched market leader is very difficult as Chi-X is finding out.

The ASX is currently trading on a trailing P/E of 15, paying over 6% in fully franked dividends. The ASX has paid a consistent dividend yield, averaging over 5% since listing on its own exchange. If you are after a solid income paying stock, the ASX appears to be a good candidate.

If you are looking for ASX investing ideas, look no further than "The Motley Fool's Top Stock for 2012." In this free report, Investment Analyst Dean Morel names his top pick for 2012…and beyond. Click here now to find out the name of this small but growing telecommunications company. But hurry – the report is free for only a limited period of time.

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Motley Fool contributor Mike King owns shares in the ASX. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool's disclosure policy. 

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