SYDNEY, April 8 (Reuters) - Australia's ASX Ltd may be forced to spin off its lucrative clearing and settlement business following a review of the nation's financial systems sparked by Singapore Exchange's bid for the bourse operator, analysts and fund managers say.
Such a move, could also make a foreign takeover of ASX more acceptable to the Australian government.
Canberra formally rejected the $8 billion SGX bid on Friday, partly due to concerns about control of those key financial systems being handed to a foreign company. [ID:nL3E7F73WZ].
Australian Treasurer Wayne Swan said that the regulatory framework of the financial systme would be reviewed after the ruling.
Unlike many other countries, the ASX is the sole operator of clearing and settlement operations in Australia and the issue is expected to be a key focus of a government overhaul of the Australian financial system.
The valuable operations -- which make up about a fifth of the ASX's income -- could be acquired by the government, spun-off into a separately-listed vehicle or sold back to the brokers, according to analysts at JPMorgan.
However, all the scenarios would face hurdles and could have mixed results for the ASX, which would lose its crown jewels but could make it more available for foreign predators.
Government ownership of those assets is unusual in developed economies, while a separately-listed vehicle would have a different agenda and profit motive to the ASX, analysts said.
JPMorgan analyst Russell Gill said while it was common for users, such as brokers, to own the operations in other countries that could also pose a conflict for the Australian government.
"If the government's concern is that ownership of these functions should not be placed in 'foreign hands' then it does not make much sense to be selling these functions back to the users in the Australian cash market, the majority turnover coming from users which are subsidiaries of U.S. and European banks," JPMorgan's Gill said.
A key issue is the government's ability to step in and take control of the systems during a financial crisis, such as last year's May 6 "flash crash" which sent the Dow Jones industrial average down some 700 points before rebounding, all in a matter of minutes.
"If the ability to step in is cleared I don't think this would be a sticky factor in any future deals," said Mark Nathan, portfolio manager at Arnhem Investment Management. (Reporting by Michael Smith and Narayanan Somasundaram; Editing by Ed Davies)