Exchange of the year - Australian Securities Exchange

The Australian Securities Exchange (ASX) stood out in 2007 for its consistent innovation, market responsiveness, and for the breadth of initiatives it has brought to the listed structured products business. Created in 2006 after the merger of the old Australian Stock Exchange and the Sydney Futures Exchange (SFE), the ASX has delivered a wider range of structured products to the Australian investor. "The Sydney Futures Exchange brought a huge amount of derivatives expertise over to the Australian Stock Exchange post the merger," says Richard Murphy, general manager, equity markets at ASX. "And with its strong understanding of sophisticated products, the SFE executives have helped build the ASX's skills in this area."

In October, ASX set a new monthly value record of A$1.3 billion traded warrants comprising 80,714 warrants trades, nearly double the 42,000 traded in January this year. This included a new daily warrants value record of A$221.9 million traded on October 24, and a new daily record for number of warrants trades of 5,212 on October 22. Murphy says that while Australian investors are not as speculative as their Hong Kong counterparts, this has not hampered the diversity of products introduced onto the ASX platform. "Australian investors are not like Hong Kong investors, who are much more interested in speculation, with some of the volumes on Hong Kong derivatives higher than the underlying stock," says Murphy. "We have focused on innovation in product type, the rules and services we have, and fees."

This year there have been a number of innovative new warrants listed on the exchange, including JP Morgan's Dividend Advance Resettable Warrant Instalments (Darwins) - installment warrants that give investors the chance to receive estimated dividends on underlying shares upfront; and ABN Amro's Minis - open-ended warrants offering leveraged exposure to underlying shares or indexes but with a principal guarantee. "ASX has been pivotal in assisting ABN Amro bring the Minis product to the Australian market," says Aaron Stambulich, head of equity structured products and warrants at ABN Amro Group, Australia and New Zealand. "The Minis, which are an open-ended leveraged CFD-style (contracts for difference) product popular in Europe, had never been attempted in Australia, but the size and robustness of the ASX platform allowed us to finally introduce them here."

In October, Barclays Global Investors (BGI) brought international exchange traded funds (ETFs) called iShares onto the ASX. The initial eight iShares made A$125 billion in total assets under management and are linked to a series of international market indexes. ASX followed this up in November with the introduction of the first CFDs to be listed on any exchange in the world. The initial CFDs are on 16 equity underlyings, with a further 10 CFDs covering major foreign exchange pairs, the S&P/ASX 200 index, the Dow Jones Industrial Average, and gold. "We saw the unlisted CFD market taking off in Australia and acted on the suggestion of an investment bank to introduce our own listed CFDs," says Murphy. "Although it is still early days, we have seen CFD volumes triple since launch."

While these initiatives have brought good traction, perhaps the major shift in volumes will occur next year with the launch of the Aqua project, which will herald a major revamp of the exchange's structured products business. The project, which is due to be finalised by July 2008, should see structured product volumes go through the roof, says Murphy. "The Aqua project will expand our ability to list a much wider range of products by providing much greater flexibility to market participants," he adds. The Aqua project covers all securities that are considered derivatives or structured products. It will provide bespoke rules for funds and structured product issuers seeking a listing, as well as giving issuers the choice of unbundled trading and settlement.

Furthermore, ASX has attempted to broaden the number of issuers on its Aqua platform to include not only banks and listed companies but also entities issuing fully covered products or with a guarantor, and any issuer approved by the ASX on an ad-hoc basis. While some other Asian exchanges have found it tough to handle the surge in derivatives volumes in 2007, ASX has been able to fall back on its robust trading platform, which it upgraded in September last year using technology from OMX's Click trading platform. And the Aqua project should further boost the ASX's trading platform by providing a bulletin board service on top of the existing trading service.