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One of the big stories of today was the merger announcement between the Australian Stock Exchange and the Singaporean Stock Exchange. Like all merger agreements between well-known Australian companies and any Asian investors, it was greeted with cries of fear.

On ABC News Breakfast, Phil Kafcaloudes pointed out that the story featured on at least 6 pages, and the AFR ultimately concluded there was no solid reason to fear foreign investment in this case.

Now, I’m usually wary of opposing foreign ownership on the grounds that its foreign ownership, because those grounds are usually baseless. But we must remember that the ASX is the primary regulator of companies listed on the ASX and I think its the only enforcer of the ASX listing rules. The theory (which has worked excellently in practice) is that the ASX has market incentives to properly enforce the ASX listing rules because otherwise companies would lose confidence in the ASX, less companies would list on the ASX (or attempt to raise capital on the ASX), trading volumes would decrease and the ASX (which makes money based on trading volumes) would lose money.

I think its worth considering how those incentives might change when you have one company controlling two exchanges. For one thing, that introduces a new incentive – the incentive to have aligning listing rules in the two countries (which takes less account of local conditions). And if the head office is overseas, we must ask how much attention they will pay to the smaller stock exchange’s listing rules. Obviously, I don’t know, but its worth considering that rather than dismissing those concerns as mere racism. It is also not unconsequential that the Singapore government is a cornerstone investor of the SGX (although, not a majority stakeholder).

And of course, those concerns must be weighed against the equally important benefits gained from the merger – the primary one being much easier access to the much larger capital markets in Asia for Australian investors and companies.

I think, in the end, those massive benefits (especially for capital raising) will be insuperable. The question for the regulator is simply how to structure the transaction to avoid some of those potential pitfalls I have mentioned.

Edit: On the other hand, what is racist is the reaction of Bob Brown and the Greens, who oppose this deal because of the supposedly bad human rights record of the Singaporean government. That is a ridiculous reason to oppose this deal considering, firstly that the Singaporean government doesn’t have a terrible human rights record. They seem to be basing it off the fact they have the death penanlty and the general authoritarianism of the government. Secondly, the Singaporean government itself doesn’t have a large stake in the SGX. It’s central bank has a 23% non-voting stake in the company

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