One of three applicants to be a market licensee in competition with the ASX, Liquidnet, has welcomed the proposed transfer of financial market supervision to ASIC as a “positive first step”, which Minister For Financial Services, Chris Bowen, confirmed paved the way for new market entrants.

The ASX’s continued supervision of its own market was “no longer desirable or sustainable”, Bowen said yesterday, although he refused to directly link the collapses of Opes Prime and Tricom to the decision, due to take effect Q3 2010. He did say that stripping the ASX of its market supervision powers was a necessary step toward allowing new market licensees, for which there are currently three applicants – Liquidnet, Chi-X, and the NZX-backed ACE-ECN. 

“Certainly this is an important precursor to those new entrants entering the market should that be the Government’s decision. It would not be sustainable to have new entrants in the market if the ASX was supervising itself, but others were being supervised by some other body or if the ASX was supervising its competitors,” Bowen said.

“It will not be necessary for this system to be in place for the Government to further consider those entrants, for ASIC to have discussions with them, and for the Government to have discussions with them and to progress the consideration of those applications while this transition work is going ahead. But it will not be possible for them to enter the market and actually operate until the supervision of Australia’s financial markets has been centralised under the one agency.”

Having already endured a drawn-out application process, further delayed by the global financial crisis (ACE-ECN was eventually forced to shut its Australian representative office), Liquidnet Australia director Stephen Zioli said his business as an alternative trading venue was not contingent on becoming a market licensee, but it would assist “our mission of bringing buyers and sellers together as efficiently as possible”.

Liquidnet has several gripes about the rules the ASX imposes on the market, particularly the ‘ten-second rule’ around the reporting of trades, which Zioli said often lead to cancellations, particularly of trades in stocks like Wesfarmers or CSL, where “spreads are wide and you’ve got algo [traders] smashing the price up and down…it’s very hard to get the market to stand still for ten seconds to get the trade up,” he said. 

The abolition of this rule, which Zioli acknowledged the ASX had been working toward, would increase Australia’s attractiveness to offshore investors, he said.

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