Don't Expect Asx To Foul Its Nest
Sydney Morning Herald
Wednesday May 3, 2000
Earlier this week the Australian Stock Exchange and Perpetual Trustees confirmed that their share registry joint venture would proceed after rival registry services provider, Computershare, dropped plans to seek an injunction to freeze the deal.
That presumably means ASX Perpetual Registrars will now be able to proceed with its plan to attack Computershare's dominant position in registry services. Computershare has about 55 per cent of the domestic market for share registrations, compared with Perpetual's 35 per cent, and is one of the world's leading providers of registry services.
Computershare responded aggressively to the original ASX/Perpetual announcement. It issued proceedings against Perpetual, which uses Computershare software for its existing business, alleging breaches of confidential information. Perpetual has flagged a counter-claim alleging breaches by Computershare of the Trade Practices Act.
In other words, this is a nasty stoush between ASX and Computershare and one given extra spice by their recent antagonism. The two clashed over their bids for the Sydney Futures Exchange last year, a contest neither won. Computershare, at the time, made known its ambition to challenge ASX's dominance of equities trading within Australia.
Apart from the legal action, Computershare is also known to have complained to the Australian Securities and Investment Commission, and perhaps also to the Australian Competition and Consumer Commission, about ASX's entry to its industry through the joint venture, although it doesn't appear ASIC has been convinced it should or can take any action to prevent or restrict the ASX/Perpetual joint venture.
The motivation for the complaint is obvious and obviously self-interested. With ASX's support, the Perpetual business is a far more formidable competitor than it has been as a Computershare customer.
The grounds for the complaint are, however, interesting and raise some complex questions about the extent to which ASX is able to leverage off its effective monopoly in equities clearance and settlement systems. There are two core sets of related issues.
ASX has a dual role, through its CHESS settlement system, as the effective monopoly provider and the regulator of settlement processes.
ASX has designed and built the CHESS system. It also develops and enforces the rules that support its settlement system. Those rules apply to the listed companies but, because the companies rely on their share registrars to help them comply with their obligations and the rules require the companies to ensure third party providers comply with the rules also bring the registrars indirectly into the regulatory net.
The ASX's position, therefore, creates two positions of potential market power and advantage. It controls CHESS and its development and it writes the rules for the settlement process.
It should be stressed that there is no suggestion ASX would deliberately abuse the position that history, and its own technological innovation, has provided it with. It is also worth noting that Computershare is big enough and aggressive enough to look after its own interests and that its global scale provides it with its own competitive advantages.
There are probably at least two levels at which the combination of ASX roles could create problems for Computershare's ability to compete.
ASX's ability to write the business rules which govern the settlement process and its knowledge of its plans for further development of CHESS could, if there were a free flow of information to the joint venture, represent a major competitive advantage for ASX Perpetual.
It would, for instance, be a major commercial advantage for ASX Perpetual if it had forewarning of ASX's system development plans.
Any changes to CHESS or settlement processes if the settlement period were reduced, for instance require complementary changes to the technology and software of the share registrars. A lead in preparation for change could therefore represent a major commercial advantage.
The situation isn't without remedy or counterbalances. Indeed, there may already be some remedies and counter-balances in place.
The obvious way to deal with the potential for conflict is to make sure that systems development plans and any prospective changes to the CHESS rules are known to all interested parties. The ASX in the past has been quite open about its technological plans and objectives.
More importantly, it is actually in ASX's larger interest to continue to be open about them and, indeed, to make sure that Computershare and any other registrars or potential registrars are at least as well informed and serviced as its own joint venture.
ASX's investment in the joint venture is a not insignificant $50 million. Next to its investment in CHESS and the smooth functioning of the sharemarket, however, that $50 million doesn't register. It would be contrary to ASX's long-term value and ambitions if it were to abuse its position by using its potential market power against a competitor registrar.
ASX's operation of CHESS is covered by a Trade Practices Act authorisation and a series of undertakings to the ACCC, which means it has an incentive, if one were needed, to avoid any controversy in relation to CHESS's operations.
There are some suggestions it has volunteered specific undertakings to the ACCC in relation to ASX Perpetual to alleviate any concerns about the vertical integration of its operations. If it has, it probably didn't need to its own self-interest is sufficiently large to discipline its behaviour.
barthotheage.fairfax.com.au
© 2000 Sydney Morning Herald