The Failed SGX-ASX "Merger" The Growth of SGX Founded in 1991 through the merger of the Stock Exchange of Singapore (SES) and the Singapore International Monetary Exchange (SIMEX), SGX began operations with a listing of 307 companies having a total market capitalisation of S$263 billion. It was demutualised in 1999. In 2000, it became the first publicly-held exchange in Asia-Pacific with its shares listed on its own exchange. One of the major shareholders resulting from SGX's IPO was SEL Holdings Pte Lid, with a 29 per cent stake. SEL is a wholly-owned subsidiary of Temasek Holdings Pte Ltd2. Following its listing, SGX expanded its presence in the global securities markets and the diversity of share offerings. SGX also entered into joint ventures with the American Stock Exchange (AMEX) in June 19993 and Chi-X Global in October 20104, allowing it to improve its competiveness against its key regional competitor, the Hong Kong Stock Exchange (HKSE). The joint venture with Chi-X created a platform for 'dark pool' trading. Apart from joint ventures, acquisition was also on SGX's agenda. Over the years, SGX has acquired a stake in foreign exchanges such as Bombay Stock Exchange, Chicago Mercantile Exchange (CME) and Philippine Dealing System Holding Corporation. Within Singapore, SGX also acquired the Singapore Commodity Exchange Lid on 30 June 20085. All these enhanced SGX's market attractiveness, increased its market depth and liquidity, and provided more product offerings to investors. One of the results of the rapid expansion was the listing of 774 companies in SGX with a total market capitalisation of S$650 billion as of 2010, up from 307 companies when it began operations in 1991. Notwithstanding this, SGX continued to look for alliance and acquisition opportunities that will help it to grow and compete with neighbouring exchanges. Then came the opportunity to acquire the Australian Stock Exchange (ASX). 69The Failed SEX-A51 \"Merger" Elstone also knew that ASX would lose its monopoly by 2011 with the high speed trading platform, Chi-X Global, poised to enter the Australia marks '4. As Chi-x waited three years15 for its license to be approved. ASX upgraded its technology systems, introduced new order types and reduced trading fees\"? Facing mostly negative comments in Australia about the proposed merger, Elstone still continued to argue that it was in Australia's national interest. He called on the politicians to decide whether \"is the national interest best served by boxing the domestic exchange into its existing strong but confined-to-Australia franchise, or should it allow its domestic exchange to truly internationaliseT'W According to Elstone: \"We can't see how this is contrary to the national interest. The combined exchange will be both more regionally relevant and globally relevant than the sum of its parts. The attractiveness of a combined pool of listings and a combined pool of liquidity would make this combination unique.\"\"' To further bolster support for SGX's bid, ASX commissioned a report by Access Economics to assess whether the merger was in Australia's national interest.19 On 6 December 2010, the report by Access Economics concluded that the \"formation would promote Australia's national interest since it is highly likely to raise the economic welfare of Australians?\" According to ASX, the deal will help Australia become an Asian financial hub, allowAustralians to diversify their savings, and lower local companies' capital costs.21 Ian Harper, director at Access Economics, argued that the takeover will \"open the pipe or channel between the Australian financial markets and the markets in Asia\"? On the other hand, some ASX shareholders felt that sex was taking advantage of ASK\". While SGX was a bigger exchange in terms of market value\The Failed Stilt-ASK \"Merger" The Deal of the Decade On 23 October 2010, major newspapers and media across Singapore and Australia were filled with headlines on the potential merger between SGX and ASX. SGX had proposed to acquire all the shares of ASX in a deal that SGX argued was in the best interests of the shareholders of both parties. Under the proposal, SGX offered A$43 per ASK share, paying in both cash and SGX shares\". The result of the merger would be a combined entity with a market value of US$123 billion\The Failed SGX-ASX "Merger" The Australian Stockbrokers Association was also sceptical of the proposal. According to the association, the deal would undermine the Australian market and benefits for Australian companies were not apparent. There was uncertainty over issues such as how capital raising opportunities would be made easier or cheaper, how clients dealing with the region would be protected, and the effect on Australia's status as a regional financial centre given that the proposal would essentially mean that the Australian market would be under the control of Singapore28. Australian lawmaker Bob Katter lashed out at the deal, saying that it was a sell-out of national assets and "lunacy on a grand scale"29. Concessions by SGX Many commentators had expressed the view that the proposed merger was, in fact, a takeover by SGX30. In the initial proposal, SGX was to assume greater control of the board, with Chew Choon Seng, the current SGX Chairman becoming the Chairman of the combined entity, the current ASX Chairman David Gonski becoming the Deputy Chairman, and Magnus Bocker becoming the CEO. However, the 15-member board will include only four Australian directors. On 15 February 2011, SGX announced a revised proposal under which there will be an equal number of Australian and Singaporean directors on the new board. The 13-member board will comprise five Australian citizens, five Singaporeans and three international directors31. On 11 March 2011, SGX submitted a formal application to the Foreign Investment Review Board (FIRB) based on the amended terms32. The FIRB's decision was set to be announced on 11 April 201133. Rejection on the Cards By early April, it was becoming clear that the deal was falling apart. On 5 April 2011, the long awaited silence was broken when the FIRB said that Australian Treasurer Wayne Swan was "disposed to reject the proposed 72The Failed SGlIl-ASX \"I'vllerger'+ Swan was sceptical about being able to have full regulatory sovereignty over the ASX-SGX holding company and this could present significant risks and supervisory issues when it comes to regulating the exchange operations effectively. To him, it was an irony to have ASK becoming a subsidiary to a smaller regional competitor in Asia. The announcement on 3 April shattered the dream of 86): in becoming one of the largest exchanges in the world. Shortly afterthe announcement, SGX shares rose 2.82 per cent and closed at S$B.33, while ASX shares fell 0.45 per cent and closed at A$33.33\"'4. The merger attempt had cost SGX an estimated S$12 million\". SGX Moving Forward Over the nine months to March 2011, SGX's average daily turnover was $331.68 billion, which fell short of the projected S$1.95 billion per day. SGX felt it needed to embark on its growth strategy to increase turnover\". This is especially so when cross-border deals have become prevalent among exchanges around the world\The Failed SEX-ASK "Merger" merger between ASX and SGX as contrary to Australia's national interest\". Although the final decision had not been made at the time, the comment triggered a positive response in SGX's share price, which jumped as much as 6.5 per cent to S$8.53, while ASX's share price fell 3.3 per cent to A$33.7035. This was a contrast to the market reaction when the deal was announced, with SGX's share price falling and AS)( share price increasing. Bocker, however, was optimistic. He said that no further amendments would be made to the existing proposal, and that there did not seem to be criticism of the proposed structure from Swana. SGX also announced that, should the deal he aborted, they \"will continue to pursue organic as well as other strategic growth opportunities, including further dialogue with AS)( on other forms of cooperation."\" The (Un)Expected Verdict? On BApril 2011, Australian Treasurer Wayne Swan rejected the proposed deaFA According to Swan, \"This is not a merger. It's a takeover that would see Australia's financial sector become a subsidiary to a competitor in Asia?!\" Swan added that \"this takeover would not enhance our access to global financial markets\". The claims made by the applicants didn't stack up. I had no hesitation in rejecting it.\" According to Swan, \"the deal would not provide a gateway to Asian capital flows as sex has limited flows to the rest ofAsia.4"'The approval of the merger would also see ASK as the \"junior partner\". To some observers, the strong disapproval of the FlFtB against the tie-up was surprising. In Swan's words, that was \"not normally the attitude of the FIFtBW. Concerns were also raised by the Treasury, Fleserve Bank of Australia, and the Australian Securities and Investment Commission with regard to the regulatory oversight\". 7'3