ASIC reveals ASX reforms push

ASIC has flexed its new powers and put the ASX on notice that it proposes to make a series of governance reforms.

ASIC chair Joseph Longo and ASX CEO Helen Lofthouse. Picture: John Feder/The Australian.

The corporate regulator has flexed its new powers over the Australian Securities Exchange, putting the market operator on notice over its pricing and barriers to competition as the ASX mulls the replacement of its ageing clearing and settlement scheme.

In a consultation paper released on Tuesday, the Australian Securities & Investment Commission floated empowering observers of the ASX and imposing external assurances over the operator’s pricing power and its barriers to competition.

The regulator is calling for comments on its report by September 10, prior to the release of any feedback and proposals to the government by the fourth quarter of 2024.

ASIC’s report is the first time the regulator has used its new powers under reforms to competition in clearing and settlement since they were implemented in May.

The regulator’s report notes it is seeking to balance competition while not compromising financial stability, but warns the ASX must remain responsive to investor needs.

ASIC warns providing transparent and non-discriminator cash equity settlement is critical, noting market participants had raised concerns about the cost of using the ASX.

The proposed rules would see the ASX forced to bring in an independent expert to conduct an audit and prepare a written report about its compliance with services rules.

The ASX would also be required to commission a review of its pricing “against the price of similar services in other comparable international markets”, after the adoption of the proposed new rules, as well as five-year check-ins on pricing.

“In the absence of competition, a monopoly CS service provider may be able to exert its market power to charge high fees to users,” the ASIC report notes. “A number of stakeholders have previously expressed the view that ASX’s CS fees were higher than in many overseas markets, particularly those in which competition in clearing had emerged or where CS services are provided by a utility.”

The ASX would also be required to document conflicts of interest and put in place procedures to manage any issues.

“Our view is that customer and stakeholder trust and confidence is critical to the CHESS ­replacement project and the covered licensees’ operation of critical national infrastructure for the benefit of the entire Australian financial market, including listed companies and investors,” ASIC’s report notes.

ASIC notes the ASX’s investment in its CHESS replacement “may give rise to barriers to access for an unaffiliated entity despite the intended design of the replacement system”, proposing to impose rules requiring chan­ges to “not give rise to barriers to access for unaffiliated entities”.

ASIC commissioner Simone Constant said the regulator was “moving at pace to develop and implement these important rules, which require that during the CHESS replacement program and beyond, the ASX remains responsive to users and does not create barriers”.