Source:  The Wall Street Journal                     Date: 11 April, 2011

Australia handed Singapore Exchange Ltd. a severe setback Tuesday in its proposed USD8.9-billion takeover of main stock market operator ASX Ltd., saying Australia's foreign investment watchdog believes the deal is not in the nation's interest. Treasurer Wayne Swan said he has not rejected the offer, but that the country's foreign investment watchdog has "serious concerns" about the proposed transaction.

The proposed takeover has whipped up a storm of political controversy in Australia with lawmakers claiming the deal would erode national sovereignty and Sydney's role as a financial hub. Because any final approval needs a parliamentary vote, the offer is a political headache for the Labor government, which has a fragile grip on power that depends on the support of independents and the Greens in parliament, who opposed the deal. Under Australian law no single shareholder can own more than 15% of the ASX and any regulation to lift that threshold must be considered by both parliamentary bodies in Canberra.

Mr. Swan's concerns come as a blow for Singapore Exchange, which is looking to grow and compete globally with rivals such as the Hong Kong Stock Exchange. A setback on the Australian deal could prompt SGX to consider tie-ups with other exchanges, although many in the West are pursuing mergers with each other already. Mr. Bocker said SGX is not "aggressively" pursuing other acquisitions and that as a company it remains in a very strong position with a solid franchise.

By not rejecting the offer completely, the Australian government has effectively dropped the deal while treading a fine line between domestic political concerns and a desire to be seen as an open market welcoming of foreign investment. But politics could make it harder for the government to convince investors that Australia is a suitable destination for investment. SGX had already made a number of concessions after initial talks with regulators, including agreeing to a quota on the number of Australians sitting on the merged entities' board.

SGX's October bid to acquire all of ASX would have created the world's fifth-largest listed exchange operator. It's among the boldest steps toward exchange consolidation in Asia, which lags behind Europe and the U.S. in regional tie-ups. Deutsche Boerse AG and NYSE Euronext are in advanced talks for a merger that could create the world's largest financial exchange, with dominant positions in trading derivatives and equities on both sides of the Atlantic. Most recently, Nasdaq OMX Inc. and InterContinentalExchange Inc. have joined forces to launch a rival bid for NYSE Euronext to rival. London Stock Exchange Group and Toronto-based TMX Group are also in merger talks that would create a trans-Atlantic group heavy on resource and clean energy listings.

The flurry of consolidation comes as exchanges are being challenged by new electronic rivals and an evolving regulatory landscape that offers rich rewards for platforms with the cost base and geographic spread to capture new over-the-counter business. For its part ASX said it has an "ongoing belief" in the need for regional and global consolidation.