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Right time to start exchange
May 29, 2006
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With the ASX-SFE monopoly dominating the market, Matt O'Sullivan finds a man willing to challenge the status quo.

BRIAN PRICE knows a lot about greed and revenge, thriving amid the "gangland warfare and manic chaos" of the trading floor of the 1980s Sydney Futures Exchange.

He's written about it in the original story for Robert Connolly's 2001 film, The Bank, the tale of a young market trader who seeks revenge on Centabank for the repossession of his father's farm.

Now the hedge funds manager and "market-risk strategist" for some of this country's richest individuals is behind a deal to establish a commodities and energy derivatives exchange for the Asian region in Sydney.

The parallels between his life and The Bank are uncanny. He admits the financial thriller encapsulates "everything in my sphere of life" because "they are the people I come across in my life because that's what business is all about".

But he denies his latest venture is part of a plan to seek revenge on the Australian Stock Exchange and Sydney Futures Exchange, which are in the process of merging.

"As opposed to revenge, it would be the challenge of it. We have a macro-branding strategy; we have high-level personal resources … we have capital; we have time. Personally, I don't need the money."

All the same, it's a timely entry for a new participant amid broker fears that the $5 billion merger of the SFE and ASX will create a pricing monopoly.

A local futures trader who declined to be named says: "Everybody you speak to is totally opposed to the SFE. If [Price] can get the locals on board to get the liquidity … and can provide the volume, we are all for it."

The Australian Competition and Consumer Commission, chaired by Graeme Samuel, has given its nod to the merger, in contrast to the rejection of an similar takeover bid in 1999 by Samuel's predecessor, Allan Fels. But it is the Treasurer, Peter Costello, who must make the final call.

In its report, the ACCC concluded that both bodies were monopolies but each operated in separate compartments of the same general market. The regulator's hope appears to be that competition will emerge from elsewhere, in which case it should rejoice at the arrival of Price on the scene.

Price is about nine months away from opening the Commodities and Agricultural Electronic Derivatives Exchange, known as Com-Agex Asia, in the former Burns Philp building in Bridge Street, just across the road from the ASX in Sydney.

"[The furore over the merger] gives us a more receptive environment, definitely, but we are not competing with their product business," he says. As such, the new exchange will not be trading three- or 10-year bonds.

"At this stage it's not in our business model. Setting up an exchange to take business from the SFE is a bad idea," Price says. "The SFE still provides a viable marketplace but we don't need to take their business to be successful."

The latest twist in this eccentric businessman's life is a joint venture between Price's group Iron Mountain - in which his partners include former Telstra high-flyer Ted Pretty - and the Newcastle Stock Exchange, in which Sir Ron Brierley's Guinness Peat Group holds a 15 per cent stake. The deal has the backing of an American hedge fund, the name of which Price is not willing to disclose.

He estimates it will cost $20 million to establish the exchange, but adds: "We're yet to determine how much [capital] we're going to need for the marketplace to think it's a viable exchange."

The prospect of a new exchange has received a lukewarm response from some market participants who point to the collapse of the Australian Derivatives Exchange after just 11 weeks of operation in 2001. Lower-than-expected trading volumes and a lack of capital were to blame.

But Price rebuffs this. "They tried to build the Panama Canal once and 100,000 people died, and they came back 20 years later and built it," he says.

"Ours is a different business model, a different strategy, a different time … and a new sort of global reassessment of commodities as a genuine asset class. In 2000 nobody thought about zinc or nickel."

Less than five years ago it probably would have remained just an idea but advances in front-end technology, notably broadband, whereby markets can be accessed from home, have opened the door to a wide range of investors.

"Computer technology has made it phenomenally more achievable. I can't think of any businesses in the world that have changed this substantially," he says. "Technology has made accessibility possible."

In his bid to raise capital, Price says he is "starting top down, rather than like the ADX which traded bottom up" - thanks to the contacts he's built up over more than 20 years in the industry.

Born in Canada, Price is a veteran of the derivatives market. He first walked into the chaos of the SFE's trading room floor in 1984, for Trans City Holdings.

"I have talked to hundreds of brokers, done millions of trades, spent tens of thousands of hours watching what's going on in the market," he says.

"On a busy day it's … crowd hysteria. People love hearing about it - look at Wall Street. My mother thought Wall Street was great and she had never traded a stock in her life."

In 1989 Price left the floor to establish Standard Options, effectively a hedge fund which would later become Iron Mountain.

But don't think for a minute that he's your typical corporate. He'd prefer a counter lunch at a pub near his office in Darlinghurst over a long lunch at Forty One. For our mid-afternoon meeting he chose Starbucks.

It's no surprise then, for a man who describes himself as a "moderate socialist", that he lists the Gaza Strip, the West Bank, Colombia and Rwanda as places he's visited because "that is where humanity really is".

"I don't see myself as a member [of the business elite]. I am certainly capable but I don't do the schmooze."

Which rules out a launch party the likes of that thrown for the ADX in late 2000, when $130,000 was spent on a gathering at The Establishment.

"It's not cost effective in building the integrity of the exchange," Price says. "We need the participants and the liquidity for this exchange to work rather than going to cocktail parties."

Reward Management's investment director, Brian Ingham, says a new exchange could be viable if it focuses on a niche market - but doubts remain over whether it will be able to attract the trading volumes to justify the capital investment.

Price retorts: "Rather than getting despondent, I get excited because it creates a challenge."
 
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