ASX looking into Broadening its Trading Base

The Australian Stock Exchange is considering plans to sponsor stockbroker research of small companies in an attempt to boost liquidity and compete more effectively with foreign exchanges.

The ASX has discussed a proposal with stockmarket participants under which the exchange would facilitate payments to analysts in order to produce "independent" research of smaller stocks that are not widely covered.

The Australian stockmarket is one of the most highly concentrated in the world; the biggest five stocks are responsible for more than 80 per cent of turnover.

The plan is believed to have been under consideration for some time and has similarities with programs in Singapore, the UK and the US.

Chief executive Tony D'Aloisio said recently that the importance of effective investor relations was not well understood outside the top 200 stocks. "We are seeing what can be done to improve this and increase the amount of coverage by analysts and the availability of independent research for the SME sector," he said.

But brokers expressed a lack of interest in being paid a flat fee by the exchange to cover neglected stocks, arguing that if the stock was worthy of coverage they did not need to be paid by the exchange.

The ASX would benefit from higher turnover in the shares of small companies because of revenue generated from trading fees.

A spokesman for the exchange said consultations with market participants was ongoing and no decisions had been made.

Some details of the program could be revealed in conjunction with the release of the long-awaited reviews of the exchange's supervisory and pricing arrangements.

The exchange has flagged a rationalisation of more than 80 different pricing mechanisms, including possible changes to the rebates it returns to brokers as market turnover increases.

Macquarie Equities said yesterday the ASX could adopt a rebate structure similar to the Sydney Futures Exchange, which includes an annual review of hurdle levels, different pricing of customer segments and more effective absorption of a downturn in volumes.

"[It] does not want to be perceived gouging customers and users of its services, thus abusing its monopoly privileges," the broker said.

The exchange has also flagged a rationalisation of its supervisory activities to minimise overlap with the Australian Securities and Investments Commission.

There are more than 1800 companies listed on the Australian market but most of them are small-capitalisation stocks that are infrequently traded.

One third of smaller and medium-sized companies are mining and exploration companies.

The exchange has flagged other means at boosting market activity such as lowering the cost of raising capital, for instance by examining the minimum number of shareholders required for a float. Currently 400 shareholders are required.

The exchange is also examining whether to drop the minimum 20 ¢ listing price for stocks.

It has also acknowledged concerns about the cost of compliance with the ASX's Corporate Governance Council principles.

It could also push for tax breaks on exploration expenditure that have played a key role in attracting listings of small mining companies to the Canadian exchanges.

Shares in the exchange have risen almost 60 per cent during the past 12 months as turnover has surged and it has halted a blow out in costs.

KEY POINTS

• The exchange is considering paying stockbrokers to cover small caps.
• The idea is similar to programs in Singapore, the UK and the US.
• Right now the five biggest stocks account for 80 per cent of turnover.