SINGAPORE.
ASIA runs the risk of being left behind in the sudden wave of transatlantic stock exchange consolidation, given the tough regulatory regimes, cumbersome ownership structures and protectionist minded governments.
The proposed tie-up between NYSE Euronext and Deutsche Boerse along with the London Stock Exchange’s move for Canada’s TMX Group has prompted talk the global exchange market is set to shrink to two or three big players.
But a reluctance by many Asian nations to cede control to foreign ownership and the struggle to improve capital market integration means their exchanges are unlikely to have a seat at the table.
“I just do not think they are ready for consolidation — all of the deals aside from ASX-SGX are happening on a transatlantic basis, in the places where people have felt competitive pressure with costs coming down and electronic trading gone up,” said London-based Niki Beattie, managing director of trading consultancy Market Structure. “Asia just hasn’t got to the point yet where it is feeling that pressure.”
Singapore Exchange kicked off the latest round with a US$7,9 billion bid for the Australia stock exchange operator ASX Ltd late last year.
On the surface, the logic for more deals in Asia is compelling. Asia is home to the Hong Kong Exchanges and Clearing Ltd, the world’s most valuable stock exchange operator, valued at US$23 billion.
HKEx may knock on the doors of the tech-heavy Nasdaq or Chicago’s CBOE as it eyes a partner amid a frenzy of merger activity.
Share turnover volume in Asia-Pacific rose 5 percent in 2010 to hit US$19 trillion while turnover in the Americas fell 0,8 percent to US$33 trln according to the World Federation of Exchanges.
In terms of new listings, Asia-Pacific bourses attracted nearly 22 000 new firms last year, up 3 percent on 2009.
That came as Europe, the Middle East and Africa saw their listing volume slide 2 percent to just under 14 000 and America saw a 0,3 percent drop to just over 10 000.
But potential suitors keen to get a slice of this growth are likely to run-up against ownership structures prohibitive to foreign investors.
Several Asian bourses such as the Bombay Stock Exchange limit the proportion of equity that can be held by a single foreign entity to a small level such as five percent.
Many others may not have such specific restrictions in place but are in the hands of owners reluctant to cede control to an outsider.
The Tokyo Stock Exchange is unlisted and owned by 114 shareholders — mainly banks and brokerages — who would be unlikely to approve any buyout bid.
Shanghai’s stock exchange ownership is based on a membership structure, and would likely require a change into a company-based equity model before any takeover could be contemplated.
“Beyond the fact that Asian exchanges are considered ‘national pride’, many are very behind the US and the European exchanges in terms of governance and ownership structures to facilitate any significant cross-shareholding structures or full-scale mergers,” said Lee Seo Young, a partner at Oliver Wyman’s Asia Pacific financial services practice.
While the overseas M&A deals may not lead to             full-blown acquisitions in Asia, they will put pressure on exchanges and authorities to facilitate more cross-border trading and alliances with other bourses.
Moves are now underway to change some of                   the ownership structures — Thailand’s stock exchange is set to demutalise and list on the exchange by 2012.
But there is another huge issue blighting the region’s markets, which would put off potential bidders.
Asia’s lack of a regional regulator means it has not undergone any of the cross-border market liberalisation measures seen in the West such as Europe’s Market in Financial Instruments Directive (MiFID). — Reuters.

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