ASX a conflicted “protected monopoly”

The Australian Securities Exchange (ASX) ran into trouble on the key CHESS replacement project because it is a protected monopoly.

That is the bottom line of a submission to a key Parliamentary Committee by rival securities and derivatives player, Cboe Australia which pointed to structural barriers to competition against the ASX.

The submission to the Parliamentary Joint Committee on Corporations and Financial Services said “the current market structure in Australia does not provide a clear pathway for a competitor in equity clearing and/or settlement to emerge”.

“…there is significant and ongoing evidence that suggests the root cause of the failure is the ‘protected monopoly’ of ASX’s clearing and settlement services combined with the extreme vertical integration of the ASX Group, characterised by the almost total integration of commercial ASX Group entities at a systems, operations, and even, on occasion, governance level,” the Cboe Australia submission said.

“The anti-competitive outcomes delivered by ASX actions in this environment, irrespective of whether those outcomes are intended by ASX actors or not, results in negative outcomes for Australian markets and investors,” it said.

“The evidence suggests that vertical integration is not of itself a cause of these failures and outcomes, but that they stem from the ASX integration model and ASX actions in that environment. This results in the ASX Group, in its current structure, being unable to appropriately manage the conflict of interests that arise between providing critical market infrastructure in the best interests of wider Australian market and using its monopoly in some infrastructure services to advance the wider commercial interests of the ASX Group.”

The submission went on to claim that “there are numerous examples of this conflict playing out to the determinant of the Australian financial system, with the CHESS Replacement being the latest and largest”.

“CHESS Replacement failed because the ASX Group did not prioritise the public interest purpose, to provide the most reliable clearing and settlement system for the Australian financial system, and instead prioritised securing future ASX Group revenue sources by attempting to take control of the entire post-trade ecosystem. This included seeking to control market data and reference data, further expand its vertically integrated model into new areas, and entrench the use of its bespoke systems. This expansionism resulted in a technology solution that was not what Australia needed or wanted, with industry, and ultimately the Australian investing public, paying the price for the ASX Group’s misplaced priorities.”