ASX benefits from increased volatility

7.ASX benefits from increased volatility

By Prashant Mehra


(Australian Associated Press)

Volatility on the global financial markets has helped break trading records at the Australian Securities Exchange.

The market operator has seen gains flow from the recent spate of volatility that has stimulated trading volumes across most of its businesses.

“More than 70 per cent of our revenues are driven by market activity. We will take it. We can’t control it but we can stimulate it a bit through smart services and products,” ASX boss Elmer Funke Kupper told AAP.

The benchmark S&P/ASX 200 index has been sharply volatile in 2015, climbing to within touching distance of 6,000 points in the first quarter.

Since then, however, deepening worries over China’s economy and uncertainty about the US Federal Reserve lifting interest rates have hit investor sentiment, with the index recently slumping below 5,000 points.

The volatility index, at more than 20, has been unusually high in the past two months, and this has boosted volumes, Mr Funke Kupper said.

“The month of August saw an unusual period of high volatility and market activity. During the last week of August, ASX broke several activity records,” he told shareholders at the company’s annual general meeting on Wednesday.

These included ASX processing over 1.5 million equity transactions and 143 million order book changes on August 25.

Trading in the ASX’s cash market grew by nearly a quarter between July 1 and September 25, with more than $4 billion traded daily.

Almost half-a-million futures contracts were traded daily in the same period, up seven per cent on the same time a year ago.

However, daily equity options trades fell 13 per cent following the collapse of trading house BBY.

The ASX boss warned investors to maintain some perspective when it comes to China, noting that while the Shanghai Composite Index has fallen 27 per cent since May, the market remains about 40 per cent higher over the past 15 months.

He said it was difficult to determine what the increased volatility in China combined with the reluctance of the Fed to increase interest rates means for the global economy.

The exchange is in the midst of upgrading its main trading and post trade systems. As part of this, it will replace the equities and derivatives trading systems by the end of 2016, reducing internal costs further.

It also plans to cut the trade settlement periods in the next six months.

“Markets in Europe and US are much larger than ours, so there are different economies of scale at work,” chairman Rick Holliday-Scott said, responding to comments about high transaction costs on the exchange.

Meanwhile, a federal government review process on the market structure for equity clearing has been delayed because of the new ministerial team in Canberra, he said.

Shares in ASX rose 80 cents to close at $37.88.


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