Pass­ing trade

A na­tional stock ex­change seemed an en­dur­ing idea at the time, writes Stephen Mills Na­tional Mar­ket, Na­tional In­ter­est By Edna Carew Allen & Un­win, 512pp, $ 60

The Weekend Australian - Review - - Books -

THE idea of Melbourne and Syd­ney op­er­at­ing sep­a­rate stock ex­changes seems won­der­fully quaint and parochial th­ese days, as fuss­ily im­prac­ti­cal per­haps as track­ing stock prices with chalk on a black­board. Yet in the 1970s and ’ 80s that was the re­al­ity of share trad­ing in Aus­tralia, along with fixed rate bro­ker­age, pa­per share cer­tifi­cates lost in chaotic back of­fices, an en­trenched cul­ture of in­sider trad­ing and se­lec­tive dis­clo­sure. Ev­ery share trans­ac­tion was taxed.

There were six cap­i­tal city ex­changes, all owned by lo­cal bro­kers, and their in­ef­fi­ciency and lack of scale of­fered the lure of price ar­bi­trage for any­one smart enough to ex­ploit it.

For one Perth in­vestor in 1970, enough was enough. As Edna Carew tells it in Na­tional Mar­ket, Na­tional In­ter­est , her his­tory of the Aus­tralian Stock Ex­change, Max An­der­son sold his Po­sei­don shares at $ 1.50 on the back of pes­simistic drilling re­ports from the com­pany, only to see them hit $ 200 shortly af­ter. His let­ter of com­plaint to then Op­po­si­tion sen­a­tor Lionel Mur­phy trig­gered a chain of events that led to the mar­ket struc­tures we have to­day.

Carew’s ac­count of those events co­in­cides with the 20th an­niver­sary of the merger of the six ex­changes into the ASX in 1987 and the in­tro­duc­tion of the elec­tronic Stock Ex­change Au­to­mated Trad­ing Sys­tem. Eleven years later, the bro­kers ceded con­trol of the com­pany when the ASX de­mu­tu­alised and, in a world first, be­came a com­pany listed on its own main board.

Carew’s saga is three sto­ries rolled into one. There is the po­lit­i­cal story of how the reg­u­la­tors achieved na­tional uni­for­mity for cor­po­ra­tions and forced bro­kers un­der the re­form thumb of the Trade Prac­tices Act. There is the tech­nol­ogy story of the crowded trad­ing floors and chalk­boards phased out by the elec­tronic hand­shake of au­to­matic trad­ing and clear­ing, en­abling vast in­creases in vol­ume and prod­uct di­ver­si­fi­ca­tion. And there is the fed­eral story of how na­tional con­scious­ness pre­vailed over parochial tra­di­tion to cre­ate a na­tional ex­change, ac­com­pa­nied, in a typ­i­cally Aus­tralian way, by squab­bling and the oc­ca­sional dummy spit about where the head- quar­ters would be and who would be chair­man.

This is not an of­fi­cial his­tory of the ASX but it is a close col­lab­o­ra­tion. The ASX se­cured fund­ing and pro­vided archival and re­search as­sis­tance. By way of dis­claimer, I must record that, as the then cor­po­rate af­fairs man­ager for the ASX, I had a hand in bring­ing it into be­ing. But the fin­ished prod­uct is very much Carew’s work.

As a for­mer jour­nal­ist and a pro­lific au­thor, Carew con­ducted more than 100 in­ter­views to pro­duce a book rich in anec­dote and nar­ra­tive drive, with a jostling cast of sup­port­ing play­ers. There is Michael McAl­lis­ter, for­mer private sec­re­tary to the duke of Wind­sor, with his drink coast­ers made from un­cashed casino chips; he be­came the role model for Trevor Sykes’s glib Pier­pont col­umn. Hugh Morgan makes a de­ci­sive ap­pear­ance telling a meet­ing of ex­ec­u­tives from the state ex­changes they were not go­ing home with­out ap­prov­ing the cre­ation of a na­tional ex­change. Bruce Bond de­vel­oped in­vestor ed­u­ca­tion in the late ’ 60s by lec­tur­ing the pas­sen­gers on board P& O cruises. Ron­ald Coppel, the ret­i­cent hero of Carew’s story, man­aged the merger process from start to fin­ish, ap­ply­ing a ded­i­cated work ethic and mod­est re­serve to re­solve the many le­gal, or­gan­i­sa­tional and risk man­age­ment is­sues un­der­pin­ning the new ASX.

The book is stronger on the an­cient his­tory, the events of the ’ 70s to 1998, than it is on the post­de­mu­tu­alised ASX. This is an in­her­ent trait of cor­po­rate his­tory. The closer you get to the present, the harder it is to de­tect the sig­nif­i­cant events among the merely in­ter­est­ing; also, con- tem­po­rary play­ers are more ret­i­cent than re­tirees.

In Carew’s last chap­ter, the ASX would not stand still long enough for her to write fi­nis. A new chief ex­ec­u­tive was ap­pointed; a merger with the Syd­ney Fu­tures Ex­change was be­gun; then sud­denly the board re­moved the chief ex­ec­u­tive. New pho­to­graphs were or­dered, new names in­dexed and new para­graphs added.

Side by side with this decades- long emer­gence of the na­tional ex­change, the broking in­dus­try un­der­went its own evo­lu­tion, sub­ject to ever in­creas­ing do­mes­tic and in­ter­na­tional com­pe­ti­tion. Vet­eran Syd­ney bro­ker Jim Bain tells some of this story in A Fi­nan­cial Tale of Two Cities, his ac­count of the main play­ers in stock­broking, bank­ing and mer­chant bank­ing in Melbourne and Syd­ney.

Bain plays a big role in Carew’s book as the fa­ther of elec­tronic trad­ing and a key sup­porter of a na­tional ex­change. As chair­man of the Syd­ney ex­change in 1986, he is­sued the chal­lenge: ‘‘ It is no longer Syd­ney v Melbourne but Aus­tralia v the world.’’ Bain’s book is cast as a con­test for fi­nan­cial supremacy be­tween th­ese two cities, with Melbourne’s cen­tury- plus dom­i­nance suc­cumb­ing to Syd­ney by the end of the ’ 60s on the tide of fi­nan­cial di­ver­si­fi­ca­tion, tech­no­log­i­cal change and global com­pe­ti­tion.

Of course those very fac­tors are what made the Melbourne v Syd­ney con­test an ir­rel­e­vancy, at least in terms of own­er­ship and con­trol. All the great broking firms of Melbourne and Syd­ney have since been bought up by US or Euro­pean banks. As Bain notes sadly, ‘‘ This wasn’t the way it was sup­posed to turn out.’’

With the merger of the New York Stock Ex­change with the Euro­pean mega- ex­change Euronext, and the Lon­don Ex­change grad­u­ally suc­cumb­ing to Nas­daq, it is likely that a stand­alone Aus­tralian ex­change will look just as quaint and parochial in 20 years as its Melbourne and Syd­ney fore­bears do now. This, too, may not be how it was sup­posed to turn out. Stephen Mills is the au­thor of The Hawke Years: The Story from the Inside and the for­mer gen­eral man­ager, cor­po­rate re­la­tions, of the ASX.

Won­der­fully quaint and parochial: Traders in full flight on the floor of the old Syd­ney stock ex­change

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