Christine St Anne: We're at the Australian Shareholders' Association's annual event in Sydney. Today, I'm joined by the ASX's Elmer Funke Kupper to talk about the market outlook and initiatives by the ASX. Elmer, welcome.
Elmer Funke Kupper: Thank you.
St Anne: Elmer, you recently reported an uplift in revenue and it comes at a time when market seems to be gathering strength. Do you expect that momentum to continue?
Funke Kupper: I think it's been particularly strong in February, March, April. So, at the half year results we said it’s still little fragile, retail investors are sitting on the sidelines. I think some of it has come back in the last two months. So, yeah, we've had much healthier trading volumes in the equity market, and combined with strong trading volumes in our other markets, we had quite a strong third quarter, yes.
St Anne: Elmer, on that point of investors sitting on the sidelines, there have, of course, been a lot of discussions about investors remaining in cash and term deposits. Do you think that they are going to start moving more into the listed equities markets?
Funke Kupper: I think investors make their own choice. I think during the GFC, we saw a drop-off in equities and a significant increase in bank deposits. While that doesn't help my company, it probably helped the economy, as of course banks rely on those deposits. So I think it was quite healthy that that happened. What we're now starting to see with interest rates coming down and yields coming up, and we're seeing the bank results recently paying very healthy yields, people are starting to go back into the marketplace. It seems to be somewhat of a hunt for yield and returns that many corporations seem to be responding to. They make up their own minds, investors make up their own minds, but if you put the two together, you can see that happening.
St Anne: Elmer, you've had fixed income ETFs, and now the ASX is looking to list bonds. Will that change the role of fixed income in an investor's portfolio?
Funke Kupper: Well, in some ways they already have fixed income investments through deposits in banks. I think that is effectively fixed income investment. We know that when we benchmark our market to other markets around the world, that we don't have a large or liquid corporate bond market. And we know from overseas markets, like Europe, that a healthy corporate bond market is something that investors value. So we've been looking at ways to start that process and create such a market for investors. An important first step is the quoting of Australian government bonds on the exchange, because that creates effectively a benchmark price for the corporate securities, because it's the lowest risk form of investing, and corporate securities then sit above it.
There's a number of other steps that we would need to take. We would quite like to see a longer-dated government bonds, so you can create a proper price curve for longer-dated securities. We need to simplify the documentation requirements and change their director liabilities for the corporate bond market. All that work is underway. So I'm hopeful that if you add all of that up, then in next 12 months we will start to see the corporate bond market slowly develop in Australia.
St Anne: Elmer, now with listed fixed income securities, and of course, we've had listed equities, how does that compare with the traditional funds management industry? Do you think investors are going to increase their allocation more to direct investing?
Funke Kupper: Well, fixed income ETF is a fund, of course, that's listed on the exchange in which you can buy units. I don’t see a big shift, and I think part of that is driven by what I call the weight of money. So if you look at the superannuation guarantee that keeps going up. We do know that the superannuation sector and the funds management sector will continue to grow. At the same time, we see self-managed super grow and personal investment grow. So where that ends up, I don't know. I'd like all of them to grow, of course, because that's part of what we do.
But I don't think we should underestimate the forces that make superannuation grow, like the increase in the guaranteed continue to grow there. We've got some very large superannuation funds already, and they will only get larger, and that sort of – that's where most of the money, I think, will go because it's this guaranteed inflow of money. And then private investors will make their own trade-offs between fixed income, securities, and deposits.
St Anne: Elmer, in your presentation, you mentioned dark pools and high frequency trading, and of course the role of ASIC. What about the role of the ASX? What role do you play in securing investor confidence when it comes to these sorts of trading tools?
Funke Kupper: We think retail investor confidence is everything. I think we've taken a different approach than some other exchanges, such as exchange in the United States and Europe. We have taken, if you will, a high ground here, because we think it's in the long-term interest of our market, and therefore in the long-term interest of the ASX that this is well managed. So, we raised a number of issues in the last two years on this issue, on high frequency trading and dark pools. I think ASIC has been listening to us. They've been listening to other market participants, and more importantly, they have been listening to investors, and I think they've come up with a measured approach and a series of steps that will control both dark pools and high frequency trading. But, of course, you have to recognize that we can never get rid of it. I mean, its effect of life, technology is effect of life, innovation is effect of life, and in many cases it's a good thing. So, we are trying to do is allow innovation, but manage the unhelpful side effects, and I think relative to other exchanges and other markets, I think ASX and ASIC have done that very well in Australia. In fact, we're seen as the poster boy of financial market regulation these days.
St Anne: Finally, Elmer, our company Morningstar has the opinion that the ASX has strong competitive advantages. How are you going to maintain that with the new entrants in the markets, like Chi-X?
Funke Kupper: Well, I think competition is here to stay, isn't it. So, Chi-X has been growing. We believe Chi-X will grow and will compete. So, that's the world we live in today, and that will continue to be the case. So, our job is to make sure that we continuously improve the services for investors with our own trading products. We've built a new data center that allows us to generate a new form of incoming technical services, and all of that has gone relatively well. So, we've been competing I think well. But, of course, when your market share starts at 100 per cent, it can really only go one way, and I think our market share over time will decline as Chi-X grows. Our job is to make sure that we compete well and that we deliver great services to our clients, and of course, that our shareholders continue to benefit from a growing company, and that's the balance that we’re trying to find. I think so far so good.
St Anne: Elmer, thank you so much for your time today.
Funke Kupper: You're welcome.