A MERGER between ASX Limited and the Singapore Stock Exchange continues a sweeping consolidation among global stockmarket operators.
The markets are facing upstart rivals and pressure on the fees they charge market participants.
The Australian revealed online yesterday that Singapore Exchange, a combined equities and futures market operator, was close to making a takeover bid for its equivalent in Australia, ASX.
The combined entity would be worth more than $14 billion and would retain listings in both Singapore and Australia.
Greg Bundy, a former CEO of Merrill Lynch Australia, said such a merger move would be "absolutely in line" with the trend that has seen the Amsterdam, Paris and Brussels Euronext exchanges form an alliance with the New York Stock Exchange, and the London Stock Exchange link up with its Rome equivalent.
"Singapore and Australia are the most progressive of the exchanges in this time zone, they are the market leaders, and it could be they are getting together to pre-empt the involvement of Japan and Hong Kong, both of which have had their issues."
ASX chief executive Robert Elstone conceded on September 28 after a report by John Durie in The Australian that ASX had held talks with other exchanges around the world about possible mergers. It is now clear the specific impetus was a tie-up with the nation's nearest equivalent market manager.
UBS is advising ASX and Morgan Stanley is acting for the Singapore Exchange.
ASX shares jumped sharply yesterday, climbing 86c to $34.96, before ASX management put its shares in a trading halt less than half an hour before the close.
"A party has recently reactivated confidential discussions with ASX concerning a possible business combination," said a note from ASX counsel Amanda Harkness to the Australian Securities & Investments Commission, which since August 1 has been real time trading supervisor.
All the major global exchanges are listed and their stock prices have been forced down in recent years by a combination of the global financial crisis, which reduced revenues, and competition.
ASX shares are 42 per cent below their peak of $60.59 set at the end of 2007, while Singapore Exchange shares have suffered an almost identical fate, dropping 41 per cent over the same period.
SGX is the stronger of the two, trading at 27 times forecast 2010-11 earnings, compared with the ASX's 17 times multiple.
ASX has long controlled share trading in Australia, but is getting ready for competition in the shape of the Nomura-owned Chi-X, which hopes to have a rival market in Australia up and running in the first quarter of 2011.
The gov ernment of Singapore has in recent years been setting up the city state as a financial hub in the same way that last year's report in Australia by former Macquarie Bank deputy chairman Mark Johnson said this country should be doing.
Expert analysts believe there is a significant complementarity between Singapore's need to strengthen expertise in its financial services sector at the same time as Australian institutional investors need to find a wider investment universe.
The weight of government-mandated superannuation funds in Australia, already calculated at more than $1 trillion and heading for an estimated $5 trillion by 2030, is seen by experts as having created a growing imbalance in asset allocation, given the near absence of a bond market in Australia and a heavy focus on locally listed stocks.
Singapore, meanwhile, has been filling up with fund managers operating on behalf of European-based organisations that prefer to cover the Asia-Pacific region from the city state, comforted by the knowledge that they are now only one long flight away from home base.