ASX Says Criticism of its Supervisory Role `Wrong'

By Shani Raja

Sept. 24 (Bloomberg) -- ASX Ltd., which runs Australia's stock exchange, said criticism of its supervisory role amid the market's rout this year has been ``mischievous, misinformed, and/or just plain wrong.''

RiskMetrics Group, a corporate governance consultancy, this month accused ASX of failing to adequately curb insider dealing and short selling, where investors sell shares they don't own in the hope of buying them back later to profit from falling prices. The Australian Securities & Investments Commission, which oversees ASX, this week banned short selling in Australia, with some exceptions, echoing moves in the U.S. and U.K.

``The criticism has to some extent been unfair,'' said Richard Wallace, who helps manage about $138 million at Sydney- based Wallace Funds Management, which does not own ASX stock. ``They're not to blame for the malaise in the market, and given they're responding to a rapidly changing environment where the agenda's being set offshore, they haven't done a bad job.''

ASX assumed its supervisory role over the nation's stock market in 1987, when the company was formed. It maintained that responsibility even after listing on the stock exchange in 1998. Its own conduct has since been overseen by ASIC.

``We can appreciate people's frustration and anger at steep falls in asset prices,'' said ASX Chairman Maurice Newman at the company's annual general meeting in Sydney. ``Some of the sweeping statements laying unwarranted blame at ASX's or ASIC's door are simplistic in the extreme and in most cases simply wrong.''

Credit Crunch

Shares of ASX tumbled 47 percent this year. That's double the benchmark S&P/ASX 200 Index decline of 22 percent in 2008 as the subprime crisis led to more than $520 billion in losses and writedowns at financial companies and slowed economies around the world. ASX's stock dropped 7.6 percent in the past two days on concern the short-selling ban will cut trading volumes, which yesterday slipped to the lowest since Sept. 1.

``There's been a significant overreaction to the short- selling news,'' said Geoff Wilson, who manages about $334 million at Sydney-based Wilson Asset Management, which holds ASX shares. ``If they banned short selling totally, it would have a negative impact of about 1 percent on ASX's profit.''

Initial public offerings in the first quarter of fiscal 2009 were down 70 percent compared with the same period last year, Chief Executive Officer Robert Elstone told shareholders. Qantas Airways Ltd., Australia's largest carrier, delayed plans for an initial share sale of its frequent flyer unit because of ``heightened market volatility.''

Trade execution volumes in the cash equities market were up 56 percent in the quarter, while traded value in that market is down 14 percent, Elstone said.

`Well Placed'

Newman, who will be succeeded by David Gonski, said ASX is ``well placed'' to deal with new competition that may arise should the government decide to issue licenses to new exchange operators. This month, the government said new competitors wouldn't add volatility or uncertainty to the market.

ASX ``may also have to merge with another major operator as part of global restructuring,'' Newman said, without elaborating.

Newman said criticism of its supervisory role ``carries the danger that the government will act on them to the long-term detriment of the market.'' ASX has added 19 people to monitoring roles in the past 12 months and will add a further 8 this financial year, he said.

``A lot of these problems in the market actually stem from the subprime crisis,'' said Simon Bonouvrie, a portfolio manager at Platypus Assets Management in Sydney who attended the AGM. ``The market deterioration is putting pressure on companies with weak balance sheets. The ASX can't tell investors not to invest in those companies.''

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.