Euromoney, November 2010

The proposed takeover of the ASX Ltd, which runs the Australian Securities Exchange, by Singapore Exchange has rightly been presented as a landmark deal. It’s the moment when exchange consolidation reaches Asia and the likely start of a sequence of bids and liaisons that might take decades to unfold.

But something has been missed amid the analysis, the politics, the regulatory debate and the general hoopla about the momentousness of the deal. This isn’t – yet – a merger of stock exchanges. It’s a merger of two companies. The two ideas are very different.

In Sydney on Monday, ASX chief Robert Elstone and his SGX counterpart Magnus Bocker fronted a press conference and reeled through slides of data on combined market share. The merger will, they said, create the second largest listing venue in Asia Pacific, with over 2,700 listed companies from 20 countries; the world’s second largest cluster of resource companies, the largest REIT sector in Asia Pacific and the largest number of ETFs. It will bring 400 derivative contracts together, meld the largest and second largest institutional investor bases in the region, and will create a combined pool of US$2.3 trillion of institutional investment wealth, second only worldwide to the USA.

Except, in its current form, it won’t really do any of these things.

This is a merger of the company that runs the Australian exchange and the company that runs the Singapore exchange. It will create a holding company that runs two separate exchanges. The exchanges’ announcement clearly says: “ASX and SGX will remain separate legal and locally regulated entities, and will maintain their existing brands. This will allow the two exchanges to maintain their existing iconic identities… while enabling customers to benefit from cross-border synergies and the greater scale, diversity and broader expertise of the combined group.”

The last part of that sentence encapsulates what will actually change. It will be easier for Australian investors to buy Singaporean shares, and vice versa. That ease of access will apply to other securities or derivatives traded on the exchanges too. There will be some modest cost synergies (S$39 million, or US$30 million) and there might – might­ – be a marketing benefit from this combination of expertise that helps to attract more IPOs to either or both markets. But what there won’t be is a single pool of liquidity to compete in this dark pool, mega-exchange era.

Of course, this is just the start; it’s going to be hard enough to get the merger through Australian regulatory and political processes as it is without pointing to a future when the two exchanges are one and the same. It may well be that true pooling is part of the future plan, but can’t be trumpeted now for fear of antagonising an already nationalistic legislature in a country whose parliament is so closely divided that one shifted vote can derail a whole process. And it is certainly true to say that the deal is greatly significant, and the start of something new. But it’s not, yet, what so many people appear to think it is: two exchanges turning into one powerful, liquid entity.

Popularity: 1% [?]