According to a report in today's Australian Financial Review, ASX Limited (ASX: ASX) is likely to see its monopoly over clearing and settlement services in Australia end. London based LCH Clearnet has applied to run clearing functions for derivatives, cash and shares.
Competition in clearing and settlement puts at risk 15% of the ASX's revenues, so it's not company breaking, but clearly the entry of LCH Clearnet and possibly other competitors, could make a decent dent in ASX's revenues.
Since rival exchange operator Chi-X was allowed to enter into competition with the ASX on equity trading, the ASX has been looking for ways to diversify its business and make itself more attractive for corporates to list on, and fend off the competition. The company has reduced some of its trading fees, and expressed an interest in Link Market Services, which is currently owned by private equity firm Pacific Equity Partners (PEP). PEP is understood to want more than $1 billion for Link.
Link Market Services provides share registry services and other share related services for over 1,000 ASX listed securities. Competitors include the gorilla in the room, Computershare Limited (ASX: CPU), with 60% of the ASX 200 listed companies, and Advanced Share Registry Services (ASX: ASW).
The ASX has also announced plans to pay broker analysts to provide research on stocks not usually on the brokers' and their clients radar. The company also recently proposed to make it easier for junior listed stocks to raise capital, which was met by a hostile reception from many parts of the market.
ASX also owns around 19% of market data software provider IRESS Market Technology (ASX: IRE), and may consider a full takeover at some stage, should new entrants in its markets cause a substantial decline in revenues.
Singapore Exchange merger back on?
When the Singapore Stock Exchange's (SGX) bid for the ASX was rejected by the Australian federal government in April 2011, one of the reasons cited was the ability of regulators to supervise clearing and settlement . That proposed deal prompted the Council of Financial Regulators to consider breaking the ASX's monopoly on clearing and settlement.
Should they go ahead with the plan to end the ASX's monopoly, it could make it easier for the ASX and SGX to revisit their merger plans. An international stock exchange operator could also become interested in the ASX.
Foolish takeaway
Its clear that the ASX has limited time left as a monopoly business. It has started to get a taste of competition, but it's increasingly likely that the company will face more rivals for its business in future.
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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
