Australian Treasurer Wayne Swan has formally rejected the Singapore Exchange's A$8.4 billion takeover of ASX, calling his decision a "no brainer".
In a statement, Swan confirmed that, having taken advice from the country's Foreign Investment Review Board (Firb), he is blocking the deal because it is not in the national interest.
"To diminish Australia's economic and regulatory sovereignty over the ASX could only be justified if there were very substantial benefits," says the minister. The claimed benefits of SGX, a smaller exchange than ASX, completing its takeover "are likely to be overstated".
Swan says that, following advice from the Reserve Bank of Australia and watchdog Asic, Firb also warned him that "not having full regulatory sovereignty over the ASX-SGX holding company would present material risks and supervisory issues impacting on the effective regulation of the ASX's operations, particularly its clearing and settlement functions".
With the Australia's government insisting the deal would need to be "substantially and fundamentally altered" to go through, SGX and ASX confirmed they have terminated the merger agreement.
The Singapore bourse says "we will continue to pursue organic as well as other strategic growth opportunities, including further dialogue with ASX on other forms of co-operation". The termination of the deal has led to a wave of speculation about SGX's future, with some analysts forecasting a takeover by the Chicago Mercantile Exchange and others seeing the bourse adopted as a junior partner in a three-way EU/US/Asia tie-up.
Meanwhile, a review of Australia's financial systems sparked by the blocked takeover could lead to ASX being forced to spin off its clearing and settlements business, according to analysts spoken to by Reuters.
ASX currently operates all clearing and settlement in the country, getting around a fifth of its income from the operations, but JPMorgan analysts say they could now be acquired by the government, spun-off into a separately-listed vehicle or sold back to brokers.
Separately, the group of seven Asean exchanges - including SGX - developing a cross-border trading link have tightened ties, launching a 'brand identity' and Web site to market themselves to investors.