Australia is set to become the first market in the region to host an electronic exchange for the trading of money market securities and repurchase agreements, with a similar system for interest rate swaps to follow.
The new debt securities exchange will be launched in the second half of this year, according to Sean Nunan, chief executive officer (CEO) of the company launching it, Money Market and Debt eXchange (MMADX).
“Post-global financial crisis, regulators and banks have changed their perception of risk and it’s important for both of those stakeholders,” said Nunan in an interview with Asiamoney PLUS. “It’s important to automate or move over the counter [OTC} trading onto an exchange so that risk management benefits and efficiencies from automating a market that has been traded by phone since the 1970s [allows participants] to take advantage of straight through processes and automation.”
The new exchange will be seeking to automate a market that amounts to AUD$11 trillion (US$11.77 trillion), more than five times larger than the turnover in Australian listed equities and options, according to Nunan.
The timing is related to the renewed focus on managing risk in the wake of the financial crisis. It has paved the way for this exchange as it has made key market participants like regulators and banks more focused on effective risk management strategies and more amenable to automated trading, according to Nunan.
“The other theme running through the banking industry at the moment is cost cutting, unfortunately, and what MMADX brings to the Australian market initially is reduction in operating cost and improvement in efficiencies because of straight through processing,” he said.
Nunan aims to take the exchange live in July of this year but the precise date will depend on regulatory approval. The company has applied for an exemption from the need to hold an Australian markets license. This is because the license is designed for exchanges like the Australian Securities Exchange (ASX) and Chi-X which include retail investors, unlike MMADX which is a wholesale market open only to banks and institutional asset managers.
After the successful launch of the exchange, Nunan aims to tackle the interest rate derivatives market, which he values at around AUD18 trillion. Following that, Nunan hinted that similar exchanges for other Aisan markets could be in the works.
“Most certainly we would love to expand into Asia but obviously we need to crawl before we walk and walk before we run,” he said. “Australia is definitely the first market we're concentrating 100% of our attention on.”
“To broaden this out through Asia, subject to building a consortium of banks and other interested parties that are happy to work with us, we would love to do that,” said Nunan. “But just to highlight the point, part of the budding success of MMADX to date has been to bring the local banks, asset managers and regulators along with us; take into account all their feedback; and make sure we have alignment of interests. That has proven to be the success[ful strategy] of new exchanges over time.”
MMADX’s board includes Bill Conn, formerly chairman and CEO of Potter Warburg (now UBS Australia); Paul Robertson, former global treasurer and integrity officer of Macquarie Bank, and Nunan, who spent 15 years in private equity.