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Political sensitivity killed the Singapore Exchange's attempts to merge with the Australian Securities Exchange. But the ASX still needs a partner to secure its future, and its Singapore peer remains the best option. Ben Power reports.
Australia's Federal Government was never going to approve Singapore Exchange's A$8.4 billion (US$9.18 billion) bid for ASX, the operator of the Australian Securities Exchange, in the current political climate.
The Labor government, with public support at 15-year lows, rules with the support of independent members of parliament. It is fighting massive public battles with business and unions over the introduction of a carbon tax, tough anti-smoking laws, and anti-poker (gaming) machine legislation.
In that situation, Labor concluded the obvious: approving an effective foreign takeover of Australia's stock exchange carried too great a risk of triggering an emotive, nationalistic backlash.
Federal treasurer Wayne Swan killed the deal - announced in October last year - on April 8 after the Foreign Investment Review Board (FIRB) advised it was against Australia's national interest. He said the benefits of the takeover to the nation were overstated. He also expressed his concerns about the loss of regulatory sovereignty over the ASX's clearing and settlement operations and has announced an inquiry by the Council of Financial Regulators.
Critics have said the decision was purely political, and that it could discourage foreign investment into Australia and risk marginalising the ASX as exchanges merge globally.
What is certain is that Swan's ruling has denied the ASX a major growth opportunity. The inquiry into clearing and settlement, in particular, raises the risks for the company, as the conclusion could be to divorce it from these operations.
At the same time, the ASX faces the appointment of a new chief executive and the end of its securities monopoly, with the entry of competitors, including alternative electronic exchange Chi-X this year.
Some analysts say Swan's decision means a merger between the ASX and another international exchange is unlikely, at least in the near term. But the pressures to merge and the benefits of a merger - particularly with SGX - are not going away.
It is really only a matter of time before the ASX finds another partner, or has a second shot at tying up with the SGX.
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