Bloomberg News

Traders Locked Out of Australia Trades as Europe Deal Struck

October 27, 2011

(Adds comment from Financial Services Minister in sixth paragraph)

Oct. 28 (Bloomberg) -- Traders of Australian equities were unable to react to the breakthrough in Europe’s debt crisis for four hours yesterday as a network error shut the stock exchange just days before its first foreign-owned rival opens.

ASX Ltd., operator of the country’s main bourse, said a “connectivity issue” prevented investors from interacting with its ASX Trade platform from 10:05 a.m. in Sydney to 2 p.m. The number of shares traded was the lowest for a normal trading day in more than a year, and comes as Chi-X Australia, the country’s first foreign-owned stock exchange, prepares to begin trading on Oct. 31.

“Chi-X must be rubbing their hands with glee,” said Rhett Kessler, who helps oversee about $1.6 billion at Pengana Capital in Sydney. For the Australian stock exchange “it must be awful in terms of the timing ahead of the arrival” of a new rival.

Markets across Asia surged while the ASX was offline as European leaders announced an agreement to writedown Greek debt and boost the region’s rescue fund. Australia’s S&P/ASX 200 Index jumped 2.5 percent after it reopened.

The halt was the longest since ASX began using a new trading system last November. ASX said it worked with Nasdaq OMX, which provided the technology, to resolve the problem. All trades executed before the halt were valid, ASX said in a note to market participants.

‘Rival Will Help’

Financial Services Minister Bill Shorten said having the rival Chi-X exchange will help in situations such as yesterday’s computer glitch.

“I think having two markets will be advantageous in the unusual situation that we encountered yesterday,” Shorten told ABC Radio on today. “What happened yesterday shouldn’t happen.

“When trading came back on, ASX was at pains to explain to me they did something close to the normal day’s trading in the remaining two hours -- it was about A$4.3 billion ($4.6 billion) and a large volume of options was sorted.”

Traders were not happy. “The serious issue was the lack of opportunity for investors to either cover risk or increase exposure, particularly during this volatile period in Europe,” Gavin Parry, managing director of Parry International Trading Ltd., said by phone from Melbourne, Australia. “It is a highly embarrassing situation for the ASX and highlights the issue of having a single monopoly exchange operator.”

Foreign Competition

Chi-X will become the first foreign-owned bourse operator in the Australian stock market’s 150-year trading history, ending the monopoly held by ASX. Chi-X’s parent is New York- based Chi-X Global Inc., a unit of Nomura Holdings Inc., Japan’s biggest brokerage.

“The connectivity issue was not related to the introduction of competition next week, and will not affect ASX’s ability to provide the clearing, settlement and other services necessary to support the launch of Chi-X,” ASX said in a media release.

Chi-X declined to comment on the stoppage, according to spokesman Hugh Fraser.

Citigroup Inc., Credit Suisse Group AG, Morgan Stanley, Deutsche Bank AG and UBS AG are among brokerages that have said they will use Chi-X Australia Pty’s trading platform when it launches on Oct. 31.

Messaging Fault

A technical fault that affected the message component of the ASX trade system in February forced the exchange to suspend operations early, the last time it experienced a glitch.

European leaders announced the results of the second crisis summit in four days during the market halt in Australia. Officials boosted the firepower of the rescue fund to 1 trillion euros ($1.4 trillion), responding to global pressure to step up the fight against the financial crisis.

Australian mining and energy companies were the biggest gainers among the S&P/ASX 200 Index’s 10 industry groups after the market re-opened. A gauge of materials companies surged 3.7 percent and finance industry stocks jumped 2.4 percent.

--With assistance from Weiyi Lim in Singapore and Jacob Greber in Sydney. Editors: John McCluskey, Richard Frost.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

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


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