David Lawrence, COO, Asia Pacific Stock Exchange (APX) examines how new venues can differentiate and work for niche markets.
APX is set to become an important new venue and catalyst for greater capital flows and business links between Australia and Asia. We want to ensure that there is global awareness of the emergence of APX in Australia and that with it comes a new way of doing business and a means of bridging the Australian and the Asia Pacific markets.
APX is a listing and trading market in Australia. Over the last couple of years we have been rebuilding the APX market into a new listing and trading platform. It has three main pillars of business:
- Capital movement between Australia and Asia, particularly mainland China.
- Domestic capital flows, and
- Niche market sectors.
Capital movement between Australia and Asia
APX was developed to bridge the gap between Australia and mainland China and other domiciled businesses. It aims to bring Chinese companies to the Australian market – particularly Chinese companies seeking access to western capital or who are sourcing products from Australia or who are looking for distribution channels. Essentially we are building an offshore Chinese market that will be an alternative to Hong Kong, Shanghai and Shenzhen.
At the same time, both our Sponsor partners and the corporate advisory part of the AIMS Group are working to bring listings into the APX. So it’s the combination of listings and investors which is bringing products and liquidity onto the market.
We are also building a trading platform which trades and settles in RMB. By bringing in Chinese or Australian companies that want China’s capital and Chinese investors who will be trading in RMB, we are taking the currency risk out of that capital raising. We are providing a platform which is, in many respects, Chinese-oriented, but offshore China.
Domestic capital flows
APX also concerns itself with Australian companies looking to expand their network and business in Asia, a listing on APX is a great alternative and an opportunity to broaden their investor base and attract Asian capital.
Niche markets
There are currently markets that are not well serviced in Australia or that have a special relationship with Asia (and mainland China in particular). It is here that we can develop new products or a new way of bringing a listing to the market which will particularly suit the needs of those niche sectors.
Markets that we are currently looking at include special sectors in the mining industry, oil and gas, Agri business and real estate investment trusts. We think those areas can be improved upon and by working with those sectors we will develop frameworks to attract a new list of products, to meet the needs of investors and to facilitate capital flows.
We are aware of the challenges we face; we feel a bit like David against Goliath in the region as we are effectively competing with Singapore, Hong Kong and other big markets. Therefore, we have to look at doing things differently and I think the latest industry buzz is that we bring quality and expertise in our staff as well as experience in markets and data. We are focused on the future – not the past – and on what can we do differently. That to a large extent creates excitement in what we are doing, and gives us a completely different angle on how we do things.
When you look at how western markets have tried to capitalise on working in China, one of the things they haven’t done very well is to understand Chinese culture and the Chinese community and the need to develop deep long-term relationships.
Where we differ is that we have already built up those long-term relationships through the connections that exist between AIMS and China. It is a long term process; China commits to us for the long term and we commit to China in the same way. Nobody wants to be in a situation where everything changes overnight. This business is built around a long-term commitment to building an exchange and a long term commitment to those relationships.
Market differentiation
The key to the evolution of the model will be through the development of quality niche markets that attract companies with investors with an interest in that specific area and the development of flexible frameworks that are niche-oriented. The old model of ‘one listing framework suits all’ is no longer appropriate, although Australia developed that system quite well, particularly in the mining industry.
We will be looking to develop a centre of excellence around the Agri-business sector. I can see other markets globally developing similar sorts of strategies to differentiate and position themselves against the major players. The smaller markets bring agility to the industry that the bigger players just don’t have.
Differentiating yourself on the trading side or through high frequency trading is not really going to be effective as a majority of trading technology has all been commoditised now.
From an Australian perspective, we are going against the tide too. We have focused on a market approach that is attractive to long term investors and which also focuses on the long term relationship aspect. We will discourage high frequency trading on our market because the feedback from long term investors is that they just don’t like it. They want a stable market and to be able to invest based on the fundamentals of the company, not on short term swings in market sentiment.
Long term investors don’t want high frequency small parcels switching in and out at the market as that is not the way they invest. We are looking at designing a trading market which suits the way investors or sectors of the market want to invest.
I think this is a model which will evolve. Globally there are the major exchange players, which can be difficult to compete against, but a market needs to be able to differentiate itself somehow.
