Exchange nationalism bad for clients, says veteran trader

Bourses such as those in Australia and Singapore need big, recognisable brands to compete these days, says Philip York of Empyreal Investments.
Exchange nationalism bad for clients, says veteran trader

The issue of nationalism that is emerging in respect of stock-exchange ownership in certain countries can only limit the offering to market participants, says Philip York*, Hong Kong-based chief executive of Empyreal Investments.

That is why many major emerging-market floats take place outside their country of domicile, he adds.

"The idea of national exchanges is as outdated as the idea of national airlines," says York. "As long as there is effective regulation, the move to global platforms will be positive, and those who stick with the idea of national exchanges can easily be left behind with poorly serviced markets."

He points to the aborted merger between the Australian Securities Exchange and the Singapore Exchange. While it would have been difficult to integrate systems and cultures had the ASX-SGX deal gone ahead, says York, the benefits of a larger, more internationally known brand would have outweighed the challenges and drawn more liquidity.

“To compete with larger competitors,” he adds, “you need to be a big recognised brand with alternative trading platforms like [alternative trading platform provider] Chi-X.”

York is well placed to comment, having traded stock and financial and commodity derivatives across exchanges globally since 1984, including on the main Asia-Pacific bourses and the CME and LME. He also specialises in seeding new asset managers and creating funds of funds for institutional clients.

The trend towards bourse protectionism has been further highlighted by a challenge that emerged last week to the London Stock Exchange’s bid for Canada’s TMX Group from the Maple Consortium, a group of Canadian financial firms.

As for other potential mergers, York says that one between Hong Kong’s exchange and SGX – which the Singapore bourse has said it would welcome – could also be beneficial, but is not likely given HKEx’s historical stance.

Indeed, HKEx chief executive Charles Li last week reportedly dismissed speculation it is considering an overseas merger, saying it is not interested in or capable of managing an overseas exchange. But he did stress the importance of Hong Kong’s ties to Greater China, suggesting that tie-ups with Chinese bourses might be likely.

York says the HKEx has been lagging other rivals technologically, but has now embarked on an aggressive programme to catch up. Prior to this new programme, adds York, the bourse relied heavily on its position as an Asian gateway and on its ability to attract major IPOs.

HKEx declined to comment in response.

A further area where traders want to see regulatory integration is in cross-border investments. York points to the push by major international market participants towards a Ucits-type passporting model for products such as exchange-traded funds (ETFs).

He is working with a company that is looking to issue ETFs, something that he notes would be made a lot easier and more effective with regional rules to allow listing and trading of these products on a cross-border basis.

Both Australia and Asean member countries are working on passporting initiatives, but it's likely to be a number of years before a fully operational regime is in place for the whole Asia-Pacific region.

* A more detailed interview with Philip York will appear in the upcoming June issue of AsianInvestor magazine, detailing how the Asia-Pacific markets might be further improved.

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