FinClear says the ‘unpicking of the ASX is possible as it is subjected to clearing and settlement inquiry

FinClear boss David Ferrall says a move to empower regulators to intervene in ASX disputes may clear the way for rivals to grow market presence.

Finclear says the ASX’s dominance in clearing and settlement had restricted rival exchanges the Cboe and the NSX. Picture: NCA Newswire / Gaye Gerard

Financial services technology operator FinClear’s chief executive, David Ferrall, says plans to empower regulators to intervene in disputes over settlement and clearance could result in the “unpicking” of the Australian Securities Exchange’s dominance in equities trading.

The federal government last week announced it would begin consultations in preparation for a Bill that would empower of regulators to intervene in market disputes, in what Treasurer Jim Chalmers said was aimed at “providing emerging competitors fair, transparent and non-discriminatory access to market infrastructure”.

This could see the ASX’s monopoly on cash equity clearing and settlement broken up.

Mr Ferrall said although the ASX made little profits from its clearance and settlement systems, it was baked into the structure of the equities market.

“Where it more impacts is the full stack capability. Everything is twined together, that’s why they’re such a powerful monopoly,” he said. “It has ramifications across other business lines – clearing and settlement is really the glue keeping it together.”

Mr Ferrall said the ASX’s dominance in clearing and settlement had restricted rival exchanges the Cboe and the NSX.

“You could see a situation where (the ASX) not only lose that dominance in clearing and settlement, but other exchanges come in with a competitive offering for clearing and settlement.”

The Cboe, formerly known as the Chi-X, is used by some market operators, but many brokers stick with the ASX in a practice that has come in for criticism from regulators at times when trading on the exchange has been suspended.

The Australian Securities and Investments Commission said in November 2021 brokers should show they could trade on the Chi-X after the ASX went dark in November 2020 when a tech upgrade caused trading to crash.

FinClear chief David Ferall. Picture: supplied

The Cboe announced on Wednesday it had wrapped up its 18-month integration program to migrate to Cboe technology and kicked off the launch of its Cboe BIDS Australia platform, aimed at offering “innovative large-in-scale trading offering to the Australian equities market”.

The rival exchange has been pushing to increase its market dominance since Cboe’s acquisition of the Chi-X in July 2021.

Cboe recently appointed former ASIC commissioner Cathy Armour to its board, bringing in house one of the corporate regulator’s key managers formerly charged with “regulating market infrastructure, market surveillance, supervision of market intermediaries and the enforce­ment of laws relating to market integrity”.

Mr Ferrall said Ms Armour’s appointment to the Cboe would help drive the exchange’s growth.

“I would have thought they will be feeling they have a spring in their step,” he said.

“If Cboe were able to differentiate a clearing and settlement capability here as well, that would go to their capability as an exchange to differentiate themselves as well.”

Mr Ferrall said the government should do more to encourage competition in trading markets, but noted Australia’s equities landscape was too small to see a true competitor to the ASX emerge under the current regulatory landscape.

“It would be expensive, very capital-intensive and the revenue is not there to support it,” he said. “We would say they really need to encourage competition via more innovative solutions that potentially sit outside or are different to current regulatory settings.”

Finclear has been developing its own alternative blockchain-based settlement system called the FCX.

Mr Ferrall said the FCX could be an alternative to the current and ageing CHESS system, which the ASX has been seeking to replace. The ASX recently announced it would book a $250m impairment after its own blockchain-based attempt to replace CHESS was put on ice.