ASX treads water

The Australian Stock Exchange (ASX: ASX) grew net profit after tax 0.6% to $348.2 million. Total revenues were $617.4 million, up 1.1% on the prior year.

The group’s cash markets division saw total revenue of $114.6 million, down 7.9% on last year. Low equity trading volumes in the first half affected the overall trading, clearing and settlement fees.

The ASX’s monopoly on equities trading in Australia is under challenge from rival exchange, Chi-X. It’s now said to handle over 10% of stockmarket trades. The monopoly on clearing services is also due for review in approximately two years’ time. The growth of ‘dark pool’ or off-market trading, by large market participants, is a third potential long-term headwind.

The ASX’s largest division by revenue, derivatives and OTC markets, saw total revenues of $197.3 million, up 4.6%. The changing interest rate environment benefitting the business, as interest rate futures traded reached record volumes. Increased market volatility generally results in higher derivative volumes.

The group also highlighted the impact of regulatory changes in the past year, raising $553 million in new equity to support its clearing operations and meet higher international capital adequacy standards.

The final dividend of 82.3 cents, fully franked, is down 3.3% on last year’s, but maintains the payout ratio target of 90% of net profit.

Foolish takeaway

The ASX’s monopoly has come under competition in recent times and it needs to maintain its best-in-service reputation to retain market share. In the fast-evolving world of securities trading, technological and regulatory changes present some long-term issues.

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Motley Fool contributor Tom Richardson owns shares in ASX.

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