March 31, 2010 / 1:20 AM / 10 years ago

UPDATE 2-Australia approves stock market competitor

* Australian government backs ASX exchange competitor

* Europe’s Chi-X set for 3rd quarter start

* Two others eyeing Aussie stock market, Asia’s 4th largest

* ASX shares fall more than 3 percent

(Adds details, ASX share performance)

By Rob Taylor

CANBERRA, March 31 (Reuters) - Australia’s government on Wednesday backed competition for the country’s stock exchange operator, announcing its support for ending the two-decade monopoly of ASX Ltd (ASX.AX).

Minister for Financial Services Chris Bowen said he had approved in principle a market licence application by Europe’s Chi-X Australia Pty Ltd (Chi-X), sending ASX shares down by more than 3 percent.

“Today’s announcement will be disappointing to some, but it is the right decision, it is the right decision for Australia’s investors and consumers and stockbrokers, and to promote Australia as a financial services hub,” Bowen said.

A new share trading market should reduce share-trading costs in Australia, Asia’s fourth-largest market, and attract more investors.

Chi-X is one of three would-be rivals to the ASX, which reigns over a market where more than $100 billion in shares change hands every month, according to data from the World Federation of Exchanges.

Chi-X is a wholly-owned Australian-incorporated subsidiary of Chi-X Global Inc, which already operates markets throughout Europe and Canada. Two other trading platforms, U.S.-based Liquidnet and AXE ECN, have also applied to set up exchanges.

ASX shares ASX.X on the Australian Securities Exchange fell as much as 3.1 percent to an eight-week low of A$33.94 before paring losses to 2.4 percent by midday. The stock has risen about 46 percent from its early 2009 lows as investors returned to riskier assets after the global financial crisis.

“The common view is that it (competition) will happen and it will take a rather a large bite out of them,” said Burrell & Co dealer Daniel Manley.

None of the three rivals is challenging ASX’s listing business, which boasts 2,200 companies, but they see an opportunity to eat into the business of transacting large wholesale trades, known as crossings, which account for almost a third of all trade.

AXE ECN is a joint venture between New Zealand exchange operator NZX (NZX.NZ) and six investment banks and brokerages: Citigroup (C.N), CommSec (CBA.AX), Goldman Sachs JBWere (GS.N), Macquarie Bank (MQG.AX), Merrill Lynch MER.N and Credit Suisse CSGN.VX.

GOVERNMENT WANTS COMPETITION

Bowen said only Chi-X was currently pressing its licence application with Australia’s corporate watchdog, the Australian Securities and Investments Commission (ASIC), which will take over supervision of real-time real-time trading from ASX in the third quarter of this year.

“Once ASIC has taken over supervision of Australia’s financial markets, and once an appropriate period of settling in has occurred, I anticipate that Chi-X will then begin operations,” he said.

Bowen said he hoped the new competitive arrangements would eventually lead to lower prices for Australia’s six million largely mum-and-dad share investors.

“Certainly lower prices for smaller investors would be a welcome development. Without competition there is no downward pressure for any fees,” he said.

While competition between financial markets for trade execution services is new to Australia, alternative trading systems have successfully operated in the United States and Europe for a number of years.

Bowen said the introduction of competition would bring a significant change in Australia’s market structure with implications for price, compliance and best execution.

“To ensure the integrity of the Australian market the government is committed to ensuring that supervisory and regulatory arrangements are established and communicated to the market before competition is introduced,” he said. (Editing by Kim Coghill)

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