Bloomberg News

Stockbrokers Balk at Australian Fees to Fund New Regulator

October 12, 2011

(Adds Treasury comment in final paragraph.)

Oct. 12 (Bloomberg) -- Plans to make users of Australia’s securities markets pay some of the costs of regulation are too expensive and unfair, according to brokers, exchanges and industry associations.

The complaints are contained in industry responses to a plan by the Australian Treasury to raise almost A$30 million ($29.9 million) in the first 18 months toward the budget of the Australian Securities and Investments Commission, the country’s market regulator. The government is proposing flat supervision fees for exchanges based on market share, charges for the cost to connect to new technology platforms and imposts for both trades and computer messages for market participants.

ASIC, as the regulator is known, took over direct supervision of financial markets in August 2010 from the country’s main bourse, ASX Ltd.. The transfer was part of a plan by the Labor Party government of Prime Minister Julia Gillard to turn Australia into a financial hub by introducing competition in the Asia-Pacific’s fourth-largest equity market. Opponents of the charges say the plan will deter new operators.

“It doesn’t make it as attractive for people to set up in Australia and it is not helping Australia become a regional financial hub,” David Horsfield, managing director and chief executive officer of the Stockbrokers Association of Australia, told Bloomberg News in a telephone interview. “We believe that it will create an unfair and inequitable financial burden for brokers.”

First Competitor

Chi-X Australia Pty, which has won approval to launch an alternative trading platform in Australia this month, making it the first foreign-owned market operator since the country’s original stock market opened in the southern city of Melbourne in 1861, says the charges put its planned venture at a disadvantage. ASX’s international ambitions were dented in April when Treasurer Wayne Swan rejected a merger of the bourse with Singapore Exchange Ltd., saying the move amounted to a takeover and wasn’t in the national interest.

The total estimated cost recovered by Treasury from the charges will be A$29.8 million in 18 months from January 1, 2012, to June 30, 2013. The charges will be reviewed after that.

Under Treasury’s plan, 16 percent of the cost will be borne by market operators, to be split between Chi-X and ASX, and 84 percent by market participants. Chi-X’s share of that 16 percent was calculated based on the assumption that it would capture 2.5 percent of market share within its first two months of operation.

Government Should Pay

The Stockbrokers Association, which represents institutional and retail trading firms and investment banks, estimates the average cost per broker over the 18 months will be A$318,000 and that larger users will pay between A$2 million and A$3 million.

Government should meet the cost of regulation instead of market participants because of the benefits that a strong financial market provides to all Australians, Horsfield said.

A major point of contention among industry participants is a proposed fee related to computer messaging by brokers using ASIC’s computer system to execute trades. A draft consultation by Treasury says it intends to charge more to those with greater trading volume.

A response submitted by the Australian Financial Markets Association, which represents more than 140 banks, brokers, securities companies, fund managers and trading companies, notes this inherently charges more to traders using high-frequency strategies.

Fewer Messages

Several of the responses, including one from Getco Australia Pty, an automated trading firm, noted that this message fee could lead to firms sending fewer messages, which would reduce liquidity and widen spreads.

The Chi-X response called the plan “fundamentally unfair.”

ASX supported the proposed cost allocation in its response to Treasury. Still, the country’s main exchange joined other respondents in disputing Treasury’s claim that increased competition would reduce spreads and offset the costs.

Treasury is considering the industry responses and has said it will issue the final fee structure before January 1, 2012. Andre Khoury, a spokesman for ASIC, declined to comment and directed enquiries to the Treasury.

An e-mail from Treasury’s communications department said draft regulations will be released for further industry comment in the coming weeks.

--Editors: John McCluskey, Nick Gentle

To contact the reporter on this story: Eleni Himaras in Hong Kong at ehimaras@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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