By Scott Murdoch and Christine Chen
SYDNEY, March 2 (Reuters) - As a change of guard looms over the embattled Australian stock exchange, the new chief's debut will be anything but smooth with a lawsuit linked to revamping a trade settlement system and a number of regulatory issues clouding its outlook.
Last month, ASX Chief Executive Helen Lofthouse said she would leave the bourse in May after 11 years, four of those in the top job. A search for a new CEO, led by a global headhunting firm, is underway.
Investors and local market participants say the new CEO will face an uphill battle in restoring the exchange's credibility as regional and global bourses compete to attract new listings and more institutional investors.
The change in leadership at the Australian exchange also comes at a time of greater worries about the strength of global financial market infrastructure because of rapidly evolving technologies and growing trading volumes.
ASX's average daily trading volume stood at A$6.9 billion ($4.9 billion) in January, a far cry from HK$272.3 billion ($34.81 billion) at the Hong Kong stock exchange.
It is the ninth largest exchange in the Asia-Pacific region by aggregate market capitalisation, according to the World Federation of Exchanges.
"You need someone that restores credibility and really does focus on understanding the problems that they are facing, and really just going from the bottom up to fix those issues," said Omkar Joshi, the founder of Opal Capital Management.
"They've been making mistakes which have been of their own accord," he said. "And to stop doing that, they need to first understand what's actually driving that and get on top of that."
The ASX declined to comment on the CEO search. Last month, ASX Chair David Clarke said the next CEO needs to "have strong credentials in financial markets, transformation and risk management."
Sean Sequeira, Australian Eagle Asset Management chief investment officer and an ASX investor, said finding a leader experienced in dealing with regulators should be a top priority.
"While shareholders would love near-term returns, for the longevity of the company, the most important part for them at the moment is to manage the regulatory risk, which would mean keeping those regulators that they are in touch with very happy with what they're doing," he said.
"That's probably the reason why (Lofthouse) was encouraged to move on ... regulators have picked up a number of missteps. Those missteps probably resulted in a requirement for ASX to make some sort of change."
'A CULTURE OF SLOPPINESS'
ASX controls about 80% of the A$9.9 billion daily equity market turnover in Australia, with smaller rival CBOE Australia holding the remaining 20%, according to regulatory data.
The company's biggest headache became public in 2022 when it said it would write down A$250 million that it spent on rebuilding its aging software using blockchain technology that would have enabled it to boost trading volumes and compete more aggressively with global rivals.
That project, known as CHESS, is at the centre of a court action launched by the Australian Securities and Investments Commission (ASIC), which has accused the ASX of misleading investors about the timetable and progress of the plan.
Hearings in the Federal Court of Australia are due to start in the middle of June.
Since then, ASX has faced a string of problems, including implementing a new software system that will not be fully operational until 2029 and multiple regulatory inquiries that have frustrated investors and market participants.
In late 2024, ASX experienced an outage that delayed the settlement of trades and raised concerns about its ability to maintain critical market infrastructure. And last year, the exchange's announcements platform froze on December 1.
"The ASX's near-monopoly means they don't face the pressures that other businesses in Australia deal with, which reduces the urgency of change," said Emanuel Datt, managing director of Datt Capital, a fund manager.
"The errors we've seen, such as consistent outages for the announcement platform, suggest a culture of sloppiness that tarnishes the reputation of such an important piece of financial market infrastructure."
($1 = 1.4071 Australian dollars)
($1 = 7.8224 Hong Kong dollars)
(Reporting by Scott Murdoch and Christine Chen; Editing by Sumeet Chatterjee and Thomas Derpinghaus)
