ASX chief calls rivals risky

THE ASX chairman has warned that proposed rival share trading platforms will hurt the Australian market.

ASX chief calls rivals risky

AUSTRALIAN Securities Exchange chairman Maurice Newman has warned that alternative share trading venues would mean danger for "the future of investment and capital raising in Australia''.

Speaking at the ASX annual meeting, Mr Newman described the proposed alternative operations as "dark pools of liquidity'' which would do ``more harm than good''.

His strongly worded comments come as the Australian Securities and Investments Commission is considering applications from two alternative trading platforms to operate in Australia, including one run by a joint venture between the New Zealand stock exchange and major financial services companies.

He said new off-market exchanges would fragment the market, reduce transparency and increase overall costs of share trading in Australia.

Australian investors and companies would pay more if additional operators were allowed to set up in Australia.

He said the proposed off-market operations would mean the Australian share market would "become less transparent, and fragmented'' and demand higher costs of supervision.

The fees charged by the ASX represented only a fraction of the total overall cost of stock market trading. "Any decrease in market liquidity through fragmentation or loss of transparency would widen bid/offer spreads and raise market impact costs.''

The higher costs would largely be borne by investors. The ASX could play a part in the global trend towards consolidation in world stock exchanges, he said.

ASX chief executive Robert Elstone told the meeting that the total value of trading in cash equities in the September quarter had jumped by 60 per cent to $431.7 billion compared to the September quarter last year.

Total share market volumes in the quarter were almost double the levels in the September quarter 2006. Capital raisings over the quarter had almost doubled to $23.8 billion.

Mr Elstone said the recent volatility had "tested the robustness'' of the ASX risk management systems.

He defended the ASX against a decision to close trading in the futures market over a lunchtime in August which led to sharp swings on the market on a day when traders were nervous about the fallout from the US sub-prime mortgage crisis.

He said the decision had been made because of a problem with the backup computer for the futures exchange. He had taken the decision to close the market for just over an hour to repair the computer rather than risk a complete system breakdown if there was no backup computer.