By Kevin Brekke, Editor Casey Research Switzerland
The Singapore Exchange Ltd. (SGX) announced today (October 25, 2010) its intent to take over the Australian bourse (ASX) in a US$8.3 billion cash and shares offer.
Following the announcement, SGX CEO Magnus Bocker said at a press conference, “The capital flow we see today is really changing from West to East. This will be the gateway to Asian capital markets.”
The combined exchange company would rank second in Asia by number of listed companies – over 2,700 – and would have a market cap of about US$1.9 trillion, placing it fourth in Asia behind Tokyo, Hong Kong, and Shanghai.
The offer, and ASX’s enthusiastic cooperation, was likely spurred by approval this year from the Ministry for Finance of a rival electronic exchange, the Chi-X Australia, thus killing a near monopoly long enjoyed by ASX. Chi-X Australia is expected to begin operations in 2011.
Chi-X Australian is a subsidiary of Chi-X Global Inc, which is owned by global broker Instinet, itself a part of Nomura Holdings of Japan. Chi-X Global is aggressively expanding, having captured 28% of UK trading and 9% of Canada’s.
The deal looks set for smooth sailing. Recent remarks by the head of the Australian Competition and Consumer Commission, the last major regulatory hurdle, indicate full support for the deal and the advantages that competition within the industry will yield.
This is a positive move on many fronts:
- It shows that governments are capable of getting out of the way of the free market and letting the “invisible hand” work its magic. Now, if only the wisdom of this action would permeate all governments regarding their interference in other areas such as finance, trade, the economy, even the institution of government itself.
- The combination creates the world’s second largest cluster of commodity companies (about 900 listings in energy, metals, agriculture), as well as the second largest institutional investor base with assets under management of over US$2.3 trillion, inclusive of sovereign wealth funds. As resource investors, this can only mean increased exposure to investment capital for our sector and our companies.
- One knock-on effect we can look forward to is a lowering of commissions by brokerages offering share dealing in Asia and Oceania markets.
Tags: Asia, Australia, exchange consolidation, singapore exchange, trend