Elmer Funke Kupper: supreme leader swims in his own ‘dark pools’

by | Mar 15, 2014 | Business, Comment Analysis

Illustration: Michael Mucci.

North Korea’s official news agency reported earlier this month that Kim Jong-un won no less than 100 per cent of the vote in the republic’s parliamentary elections.

”This is an expression of … people’s absolute support and profound trust in supreme leader Kim Jong-un as they single-mindedly remain loyal to him, holding him in high esteem,” the report said.

While Kim has been cementing his control over North Korea, Elmer Funke Kupper, the supreme leader of the Australian Securities Exchange, has adroitly kept his grip over financial markets in Australia.

As Kim champions democracy in the Democratic People’s Republic of Korea, so Funke Kupper espouses free markets and the level playing field in Australia.

To be fair to the personable Funke Kupper, the despicable Kim deploys guns and terror to maintain control, whereas he merely uses terrifying words such as ”dark pools” and ”flash crash” while invoking the spectre of fiendish high-frequency traders running amok. It has had the politicians scared stiff for years.

He was at it again this week, conjuring the ghouls of dreaded competition. Over in London for the Citi investment conference, Funke Kupper called on Canberra to entrench his monopoly over sharemarket clearing and settlement for another five to 10 years.

Former treasurer Wayne Swan had already extended this ASX stranglehold until 2015. But will Joe Hockey and Arthur Sinodinos continue to buy the story?

So far they have spurned cries for help from Qantas and SPC Ardmona. The era of corporate welfare for the auto makers, too, is in its twilight.

Yes, it is true that the banks are mollycoddled like never before, but will the ASX retain its membership of the elite Too Big To Fail Club?

Will the penny drop? Will Hockey and co realise the ASX is itself the premier hotbed for the hobgoblins of high-frequency trading?

The Son of Wallis inquiry into Australia’s financial system looms. Will they twig that the ASX is the biggest ”dark pool” of all – having countervailed the world trend to greater transparency by ”going dark” – or removing broker identification numbers in 2005.

And what of these dark pools? A dark pool is no more than just a bunch of people trading somewhere. These other dark pools – the sinister ones so demonised by the ASX – have been spawned by frustration in the big investment houses that the algorithmic trading brigade continually ”front-runs” their trades, raking off a few basis points in profit. It is Funke Kupper’s job, of course, to keep the dark pools in-house. And like his comrades Gail, Mike, Cameron and Ian at the big four banks, his performance will be measured by maintaining government protections.

Double standards

Ironically, while the ASX has prattled on about the importance of local clearing, local regulation and holding collateral locally – this was the case put for denying the London Clearing House a market entry – it has been having discussions with Chicago’s CME to shift Australian collateral back and forth.

Double standards abound, and not just at ASX. Success in big business is increasingly about the ability to influence politicians and bureaucrats. It is about the level playing field with one, or just a handful, of players.

It is about the rise of the corporate affairs and government relations departments with the regular ebb and flow of staffers from ministerial office to corporate office. Like no others, they can conflate the interests of one business with the national interest.

Then there are the big guns. It is a fair bet that former Treasury boss Ken Henry is not on the ASX board for his golf swing.

In the lexicon of business, strategy, leadership and execution are being transcended by influence, lobbying and regulatory optimisation.

Risk to the financial system is the prominent catchcry of the monopolists. Foreigners are scary, too.

Not satisfied with the protections given to ASX by the Labor government to quarantine its cash equities clearing and settlement business, the most recent corporate bogyman is the threat of a competitive over-the-counter (OTC) clearer.

Funke Kupper frequently brings up the demise of MF Global as a reason to have an Australian regulated clearer for Australian companies. Yet he fails to mention that ASX may have been the only clearing house in the world not to transfer MF Global’s client positions from MF Global to another clearing member despite being asked to do so. And it only released their collateral once the liquidation of MF Global Australia was complete.

Not only was this a slight on Australian capital markets, but it also allowed the ASX to enjoy the economic spoils of the interest earned on the client collateral it held – unless the liquidator took it.

There is much talk of Australia as a regional financial centre and the ASX as an internationally competitive company, but contrast its rhetoric with Magnus Bocker from the Singapore Stock Exchange. In a recent interview, Bocker spoke of wanting other exchanges to operate in Asia: ”I’d like to see CME investing more in Asia. I’d like to see ICE investing more here. I’d like to see Eurex, Liffe, all of them to come to Asia and play a part in growing the market.”


Michael West

Michael West

Michael West established michaelwest.com.au to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.

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