The proposed takeover of ASX Ltd, which runs the Australian Securities Exchange, by the Singapore Exchange has rightly been presented as a landmark deal. Its the moment when exchange consolidation reaches Asia and the likely start of a sequence of bids and liaisons that might take decades to unfold.
But something has been missed amid the analysis, the politics, the regulatory debate and the general hoopla about the deal. This isnt yet a merger of stock exchanges. Its a merger of two companies. The two ideas are very different.
In Sydney on October 25, ASX chief Robert Elstone and SGX counterpart Magnus Bocker fronted a press conference and reeled through slides of data on combined market share. The merger would, they said, create the second-largest listing venue in Asia Pacific, with more than 2,700 listed companies from 20 countries; the worlds second-largest cluster of resource companies; the largest Reit sector in Asia Pacific; and the largest number of ETFs. It would bring 400 derivative contracts together, meld the largest and second-largest institutional investor bases in the region, and create a combined pool of $2.3 trillion of institutional investment wealth, second only worldwide to the US.
Except that, in its current form, it wont really do any of these things.
This is a merger of the company that runs the Australian exchange and the company that runs the Singapore exchange. It will create a holding company that runs two separate exchanges.
It will be easier for Australian investors to buy Singaporean shares, and vice-versa. But what there wont be is a single pool of liquidity to compete in this dark pool, mega-exchange era.
So while its true to say that the deal is of great importance, its not, yet, what so many people appear to think it is: two exchanges turning into one powerful, liquid entity.