In Hollywood, the sniper is depicted as a loner. In real life, though, snipers rarely work alone. The sniper operates with a spotter as a highly skilled team.
The spotter will call the wind, make the range estimate and look for trace. And if the sniper misses, the spotter will call the correction.
In the corporate theatre, there is no finer spotter than the Australian Securities Exchange. The ASX will evaluate its target with deadly precision, then, when the conditions are right, whisper to the politicians or the regulators: “Send it.”
The target is always competition.
And so it was that the dreaded beast of competition was coldly slain the other day, once again, when the ASX monopoly over clearing in the stockmarket was entrenched by decree of the Treasurer. Thud. Competition shot down for another two years. The ASX was spotter, the sniper was Wayne Swan.
“While competition would be expected to deliver efficient out-comes, now may not be the
appropriate time for changes that will have further cost implications for the industry, given current market conditions and the magnitude of regulatory change under way,” said the Treasurer.
The spotter is not fussy about its snipers; the ASX uses a range of marksmen, deploying the Australian Securities and Investments Commission, the Council of Financial Regulators, the Australian Competition and Consumer Commission or the Assistant Treasurer.
While sanctimoniously professing their ”long-standing commitment to competition in financial markets”, the Treasurer and the council promised last month the ASX could keep its monopoly for another two years while it – wait for it – “committed to the development of a code of practice”.
Unlike in the other great Australian monopolies such as Foxtel and Sydney Airport – where barriers to entry are naturally high – the thing for ASX management is to hang onto the exclusive licences. And, in this, it has done a sterling job for its shareholders. They have fared better than customers.
But the cancer that eventually eats away at all monopolies now threatens to eat away at even shareholders. Like all monopolists, ASX has fine defensive skills but is terrible at playing offence. It has hardly had a successful new product in 15 years, although it has tried the registry business, contracts for difference and property settlement in Victoria. The ASX is still making its money on the same products it always has.
Whether by toying with its pricing to turn the screws on Chi-X, stonewalling on third party access to its protected from competition clearing system CHESS, double-dipping on CHESS-access charging, taking shares in dominant market access provider IRESS or by railing against “dark pools”, the ASX has managed to stymie competition continually. It is understandable to feel some sympathy for the politicians, too. A compelling character such as ASX chief executive Elmer Funke Kupper travelling to Canberra to regale them with tales about dark pools and the sinister threat from ”high-frequency traders”is a good story.
Algorithmic traders who can bring down world markets in a ”flash-crash” with one evil keystroke as their contorted faces snigger fiendishly is a great story. And one that scares the living daylights out of politicians, naturally loath to be held potentially responsible for a crash of Australia’s financial markets.
But it’s a beat-up. A dark pool is no more than just a bunch of people trading somewhere else – not inclined to use the ASX because they fear the ASX’s other clients, the high-frequency traders, will ”front run” their trades and snip a few basis points here and there.
Ironically, the biggest dark pool of the lot is the ASX, which entirely flew in the face of the global trend to greater transparency when it went dark itself in 2005.
Funke Kupper is in somewhat of a bind, wanting the dark pools in-house, not outside. Still, the main game remains spotting the hostile beasts of competition, tapping those politicians and regulators and whispering: ”Send it.”