THE Australian Securities Exchange has warned that stockbrokers face a costly ''technological arms race'' that could put some smaller players out of business if rival exchange operators gain approval to enter the local market.
The comments by the chief executive, Robert Elstone, come as the federal government considers whether to allow several players to begin operations, which would break the ASX's long-held monopoly on equities and futures trading. But Mr Elstone stepped up resistance to new entrants, saying more operators would mean brokers would have to overhaul their trading systems to allow them to connect to various platforms.
''If the market structure evolves to a multi-market operation, that would unequivocally kick off something of a technological arms race,'' he said yesterday.
While larger brokers would have ample resources to spend on technological changes, there would be questions about the ability of smaller brokers to ''stay in the game'' as the rate of spending on technology escalated.
The ASX has long argued that the prospect of niche exchanges would fragment the market and reduce liquidity. But potential new entrants say this has not been the experience overseas.
Competition is one leg of a broader overhaul of the nation's finance markets which includes a plan for key elements of supervision of the market to be transferred to the Australian Securities and Investments Commission.
The ASX now acts as market supervisor as well as profiting from each trade on the sharemarket.
Yesterday the ASX revealed a 2.2 per cent drop in net profit to $168.1 million for the six months to the end of December.
The earnings dip followed a drop in interest income from ASX's vast capital reserves, given lower interest rates.
But ASX's cash earnings - a figure closely watched by investors because it provides a better snapshot of the performance of the business - jumped 7.9 per cent to $225.4 million with the pace of earnings accelerating during the December half as markets recovered.
Analysts said the cash earnings were slightly ahead of expectations on improved margins and better-than-expected listing revenue of $65 million.
Average daily equities trading of 508,200 during the December half was well up on 432,800 in the previous corresponding period.
Mr Elstone said that while the worst of the market volatility seemed to be over aftershocks were possible, particularly from sovereign debt issues in Europe. ASX declared an interim dividend of 89.1c a share, which was down 1.4 per cent on the same time last year. ASX shares ended 3 per cent higher at $36.92.
With the prospect of competition the ASX is scouring for new ways to make money, mostly by pushing deeper into derivatives trading, which is growing at a faster rate than traditional equities trading. The exchange also agreed to a major upgrade of its trading platform, bringing in the high-speed platform used by the US exchange Nasdaq.
The move paves the way for the introduction of high-frequency and algorithmic trading, which would fatten profits for the ASX.
