ASX tie-up signals global trend

It’s interesting to look back in time, and abroad, to gain a wider perspective on the planned merger of ASX Limited and Singapore Exchange, announced this week.

Twenty-five years ago, there was an intense debate over the establishment of a national stock exchange in Australia.

Up to the mid 1980’s, each state had its own stock exchange and, not surprisingly, members of the Perth exchange had a strong parochial attachment to their exchange.

The Sydney and Melbourne exchanges set the ball rolling in the early 1980s when they commenced discussions about a two-way merger.

Sydney Stock Exchange chairman Jim Bain summed up the mood of the time when he said, “it is no longer Sydney v Melbourne or Brisbane v Perth, but Australia v the world”.

Over time, the merger talk gathered momentum and led to the establishment of a national exchange, formally launched on April 1, 1987.

The 43 members of the Perth exchange begrudgingly accepted the national move, but not before some had fought a rearguard action to retain direct control of their own destiny.

The arguments put forward at that time retain a familiar ring: Perth is a ‘can do’ town, it is entrepreneurial, it needs to be flexible and would be stifled by big east coast institutions.

Some of the smaller firms in Perth even considered breaking away from the national exchange to form a West Coast Stock Exchange, according to Graeme Adamson’s book Miners and Millionaires.

We should be thankful that didn’t happen because the Australian Securities Exchange has proved to be an efficient and effective source of capital for Western Australian companies.

Indeed, Perth is home to about a third of all companies listed on the ASX, including hundreds of small, speculative stocks that have survived and in many cases thrived under national standards and regulations.

The operation of a national exchange nearly unraveled in 1991, when the WA government opposed the establishment of a national system of securities regulation.

Its opposition to the new Corporations Law meant that Perth stockbrokers would not have been covered by the ASX’s national guarantee fund.

In response, the ASX considered turning off the SEATS trading system line to WA and ejecting it from the national stock exchange, according to Edna Carew’s book National Market National Interest.

The WA government relented at the 11th hour, holding a special sitting of state parliament between Christmas and New Year to enable WA to participate in the Corporations Law.

The replacement of state exchanges with a single Australian stock exchange has been followed by further rationalisation.

In 2006, the ASX announced an agreed merger with its one-time fierce rival the Sydney Futures Exchange.

The same trend has occurred internationally.

NYSE Group, owner of the New York Stock Exchange, bought Paris-based Euronext in 2007; the combined group now operates six equities exchanges and six derivatives exchanges in five countries.

Another cross-border merger in 2007 saw London Stock Exchange Group acquire Italy’s Borsa Italiana.

That was followed a year later by Germany’s Deutsche Boerse buying US derivatives exchange International Securities Exchange.

The same year, the US-based NASDAQ exchange bought OMX, which controls seven Nordic and Baltic exchanges.

NYSE Euronext, Deutsche Boerse, NASDAQ OMX and the LSE Group have all subsequently explored merger options.

None have come to fruition but the trend is clear. The world is becoming a smaller place, technology is making integration easier and financially compelling, and large institutional investors are taking a global perspective on their investing activities.

These trends are not unique to the securities industry. Publishing, mining, almost any industry you care to name, is subject to these forces.

While all of us have a sentimental attachment to things in the past, there is usually little value in trying to halt the tide of change.

It is smarter instead to embrace the trend and use it to our advantage; just like the creation of a national stock exchange has served WA business well.