I have been able to confirm that the monopoly Singapore Stock Exchange has charges and costs that are about four times higher than the Australian Stock Exchange. The Singapore exchange is set to take control of the ASX.
Whereas the ASX discloses that it’s average cost per trade is 1.33 basis points, the Singapore Stock Exchange does not publish an equivalent figure. Earlier this month I revealed that Singapore Exchange charges could be in the vicinity of 6 basis points — or more than 4.5 times the Australian figure (What ASX shareholders could lose).
At the time I could not verify the information but this week well-informed sources confirmed that my figure was very close to being correct.
Against this background the remarks of Mark Johnson, the chairman of the Financial Centre Forum, in his KGB interview are of great significance. Johnson says the Financial Centre Forum has not yet considered the affect of the ASX sale to Singapore against Sydney’s aim to be a regional financial centre so he could not comment on my claim that it ended the dream (Our finance hub dream is over, and Losing our ASX advantage).
However, Johnson clearly believes that the Singapore charges, which are the basis of its current profitability, are not sustainable if Singapore wants to be a regional centre
He says “you’ve got to make a judgement about whether they (the Singapore Stock Exchange) can maintain that premium for what is essentially a utility service.”
Johnson questions “how long higher costs could be maintained when you’ve got, not only Chi-X wanting to come in; you’ve got all the big investment banks operating dark pools in essentially their own private stock exchanges.
“And we know the technologies that underline the ASX and underline the Singapore Stock Exchange are essentially the same.”
Johnson did not go any further but his short remarks will have enormous implications for Australia and ASX shareholders:
- There is a risk the high Singapore charges might migrate to Australia if the bid proves successful. Those who favour the bid say that Magnus Bocker, the new Singapore Exchange CEO who will lead both exchanges, is from Sweden not Singapore. He is aware of the inefficiency in Singapore and wants the ASX expertise to help make Singapore more efficient. The bad practices in Singapore will not be transferred to Australia.
- ASX shareholders are receiving Singapore paper which will amount to about 35 per cent of the joint company. Singapore Stock Exchange profits are artificially inflated by its monopoly rent whereby it uses its sole rights to Singapore to overcharge for its services. If Johnson is right this is not sustainable and the current premium on Singapore shares is artificial.
- Supporters of the bid say that even if the Johnson conclusion is right, the premium ASX shareholders are receiving, which includes the high cash content, means ASX shareholders will still receive a benefit not available if they remained independent.
- Supporters of the bid say that Australian shareholders will have a big role in the merged company as will the Australian management.
When this bill comes before the Parliament and the enormous difference in charges is revealed, those advocating the merger will a face hard time despite the work of its supporters.
When Johnson feels he can comment on the bid in detail it will have enormous impact.
*This article originally appeared on Business Spectator.