Australian equities houses overpay ASX fees

An industry-funded research report commissioned by a group of ten equities market clearing participants - including Pershing, Citi, Deutsche Bank, Credit Suisse, Morgan Stanley and Bank of America Merrill Lynch - has found Australia to be one of the world's most expensive developed markets to clear and settle equities. This is the case even once economies of scale have been accounted for.

The report was authored by Niki Beattie, chief executive officer of Market Structure Partners. Her findings show combined costs for clearing equities trades in Australia are the third most expensive in developed markets after Spain and Brazil. This contrasts with an earlier report commissioned by ASX and prepared by independent consulting firm Oxera, which concluded ASX charges were in the mid-range of comparable markets.

This latest report focuses on the costs incurred directly by intermediary market participants, which Beattie said was the best way to analyse true costs to a market as these can be passed on to clients of the intermediaries.

"Therefore analysing intermediary costs, rather than end investor costs, is the most fair comparison across markets and it is important to acknowledge that when it comes to clearing, the clearing members are directly on the hook when it comes to managing risk," she said.

Looking at value and number of trades cleared compared to the average cost to clear them, the report showed Australia to be the second most expensive market after Brazil.

"We note in the report that the three most expensive markets for post-trade - Spain, Brazil and Australia - are all markets with one dominant exchange, where the issue of clearing has not been addressed by regulators prior to the listing of an exchange. It looks like in these markets there is room for improvement when you examine the cost of clearing," said Beattie.

The report does not make recommendations on the basis of its research. However, with the moratorium on clearing competition coming to an end early next year, Beattie said it was a sensible time to independently review the real cost to Australian market participants of such high post-trade fees and the overall risk model. It looks at questions such as the ASX Clear risk model, based on the fund allocating 100 per cent of its own capital to a default fund.