ASX dominance under threat by CBOE as it considers launching a rival clearing service

“We are already doing the work. The industry wants competition across options and futures [trading] and certainly across clearing and settlement.”

CBOE is one of the world’s largest exchange operators and runs the biggest US options exchange and a handful of equities bourses in addition to a European share clearing business.

The decision to build out its trading capabilities into futures and options and expand its current role facilitating the listing of managed funds into company share listings would mark a natural extension of its present offerings.

Demand for competition is there

However, any move to evaluate launching a clearing and settlement business would threaten to end the ASX’s iron grip on one of the country’s last large, national monopolies.

ASX Clear remains the only cash equities clearing house in Australia despite the government opening the sector to competition five years ago.

Since then, a handful of global operators including London-based LCH, one of the world’s largest clearing houses, have considered launching a local operation, but none have materialised.

“There is clearly demand for competition in what is monopoly infrastructure,” Mr Jokovic said.

“Everyone agrees we need a plan B, whether that is CBOE, another clearing house or a different model.”

The budding plan to compete head on with the ASX in clearing and settlement comes at a pivotal time for the incumbent exchange operator.

The ASX is struggling to roll out an upgrade to its so-called CHESS clearing and settlement platform, which was unveiled seven years ago and remains only in its initial testing phase.

‘We need timelines’

The company last month said it would probably push back the system’s previously forecast start date for the fourth time, frustrating broker clients who have had to dedicate technology and staffing resources for the shift.

Underscoring the perils of monopoly businesses, the delays to the new CHESS system may stymie the development of a competitor.

“That piece of infrastructure is not an opt-out, we’re all in it together. Everyone is interconnected via that piece of infrastructure,” Mr Jokovic said.

“There is a lot of pressure to build into CHESS mark two, and we need timelines. We need to know what is going on.”

Mr Jokovic said CBOE’s experience running EuroCCP, one of the region’s largest clearing houses, meant it was inevitable the company would consider its own local service.

“It’s the most connected clearing house in Europe, if not the world. CBOE is very experienced in running a large, global clearing house.”

The ASX has suffered three outages across its share and futures exchanges in the past six years that have raised further questions about its technology acumen.

Last month, ASX 24, its futures trading platform, went offline for hours during a busy day of market-moving economic announcements. In late 2020, its equities trading platform, which accounts for most shares traded in Australia, failed for an entire day.

The episodes have refocused the attention of regulators and ASX clients, which include the big brokers and fund managers, on the company’s technology and market dominance.

“Others may think we take delight [in the outages] but it causes us issues as well,” Mr Jokovic said.

“When they’re down we end up having a low-volume day because the market in effect shuts down. That causes us a loss too.”