Monopoly ASX should constrain its costs says SIAA

The Australian Securities Exchange (ASX) may never have its clearing and settlements monopoly challenged and it should be treated accordingly, according to the Stockbrokers and Investment Advisers Association (SIAA).

The SIAA has told the Australian Securities and Investments Commission (ASIC) that clearing and settlement services are currently provided on a monopoly basis and it is difficult to see how a competitor could emerge over the short term.

It said that, because of this, “it is important that the rules provide for outcomes that are consistent with those that might be expected in a competitive environment and ensure that ASX provides access to its clearing and settlement services on a transparent and non-discriminatory basis with terms and conditions, including pricing, that are fair and reasonable, notwithstanding that the services continue to be provided by a vertically-integrated monopoly”.

The SIAA made its comments in response to ASIC consultation around the Clearing and Settlement Rules.

“Creating competition in markets where the monopoly provider of services also controls the infrastructure in a vertically-integrated model has been historically challenging,” it said. “In some instances, this has required the monopoly provider to divest itself of the necessary infrastructure to which competitors require access. For example, when the government decided to facilitate competition in the telecommunications market, significant changes were made to the structure and operations of the monopoly provider (Telstra), to break up its vertically-integrated model.”

“It may well be, that without significant structural change, a competitor will never emerge to provide clearing and settlement services and that rule changes are not enough to facilitate competition. For example, a competitor may not want to share ASX’s infrastructure,” the SIAA said.

“There may also be financial reasons why a competitor does not enter the market; it may not be profitable enough to support two providers. This does not mean that the policy objective of facilitating competition or competitive outcomes should not be pursued. We consider that it is still important for the rules to be implemented.”

The SIAA sent a clear message to ASIC that it did not believe that stockbrokers should foot the bill for changes around the clearing and settlement rules.

“Our members do not anticipate incurring any direct costs resulting from any of the proposed clearing and settlement rules. We are unclear as to whether ASX will incur any costs in implementing the clearing and settlement rules and if so, whether those costs will increase the price charged for clearing and settlement services,” it said.