The Bear Case for ASX Ltd (ASX: ASX)

Despite a history of steady revenue growth and reliable dividends, ASX Ltd (ASX: ASX) is facing a growing storm that could challenge its dominance in Australia’s financial markets. Long considered an unshakable monopoly, the Australian Securities Exchange is now grappling with intensifying competition, regulatory scrutiny, and a mounting technological credibility crisis.

As 2025 unfolds, investors who once viewed ASX as a safe, defensive play in the financial sector must now reckon with structural risks that could undermine future performance. Let’s explore the key reasons driving the bear case for ASX Ltd—and what recent data and developments suggest for the year ahead.

1. Competition and Regulatory Threats Escalating

For decades, ASX operated with near-monopoly control over Australia’s equity listings, clearing, and settlement infrastructure. However, 2025 marks a major inflection point. The Australian Securities and Investments Commission (ASIC) is finalizing approval for Cboe Global Markets (Chi-X) to host IPOs and list securities—effectively ending ASX’s exclusive grip on the Australian listings market.

This development could have far-reaching consequences:

1. Loss of pricing power: With Cboe already handling around 20% of daily trading volume, a competing listings platform means issuers and investors now have a meaningful alternative. This will likely pressure ASX’s fee revenue and market share.
2. Regulatory scrutiny: Multiple investigations are underway, including a broad ASIC probe launched in June 2025, targeting ASX’s governance lapses and repeated technology failures. These inquiries could lead to fines, tighter supervision, and additional compliance costs.
3. Reputational risks: As trust is central to ASX’s role in the market, any dent to its image could drive brokers and investors toward alternatives like Cboe, especially if new platforms offer better reliability and innovation.

The once-unquestioned market dominance of ASX is now being tested—potentially reshaping Australia’s capital markets landscape in the coming years.

2. Technology Woes: The CHESS Overhang

Few issues have damaged ASX’s credibility as much as its botched CHESS replacement project. Initially touted as a world-leading blockchain-based settlement system, the project has turned into a multi-year embarrassment.

1. In December 2024, a major malfunction caused trading disruptions, forcing ASIC to step in and ultimately cancel the project. Regulators cited “serious failures in governance and risk management”—a stinging indictment for an exchange that prides itself on stability.
2. As global exchanges like the Singapore Exchange and Nasdaq race ahead with instant settlement and digital innovation, ASX remains stuck with legacy systems.
3. The fallout has been costly. Management is now diverting attention and capital toward rebuilding trust, while technology-related expenses continue to climb, delaying new growth initiatives.

What was once meant to showcase ASX as a pioneer in market infrastructure has instead become a symbol of stagnation and mismanagement, eroding investor confidence in its operational leadership.

3. Cost and Margin Pressures Rising

ASX’s latest financials also reveal that cost pressures are building faster than top-line growth.

1. FY25 expenses jumped 7.2%, reaching approximately $460 million, largely driven by higher technology spending and depreciation costs.
2. Net profit after tax (NPAT) declined 6% year-over-year to $502.6 million, reflecting both higher expenses and subdued revenue growth.
3. Interest income, once a tailwind, has become volatile. While ASX benefits from its large cash and liquidity holdings, rising bond and facility costs are eroding returns. With RBA rates expected to compress, future net interest income may stagnate further.

The dividend payout ratio remains high at around 85% of NPAT, but the coverage is thin. Sustaining such payouts will be increasingly difficult if costs continue to climb faster than revenue. Unless ASX can rein in expenses or unlock new growth drivers, margin compression could become a persistent drag on shareholder returns.

4. Valuation and Growth Risks

While ASX still enjoys healthy profitability, its return on equity (ROE) of 13.6% in FY25 is no longer industry-leading. Global peers such as Nasdaq and Hong Kong Exchanges are achieving higher returns by aggressively expanding into fintech, data analytics, and alternative asset markets—areas where ASX has fallen behind.

Furthermore, the growth outlook appears muted:

1. Australia’s IPO pipeline is softening amid macroeconomic uncertainty and rising competition. With Cboe entering the listings space, issuers now have cheaper and potentially more flexible options.
2. Core revenue from Listings and Issuer Services is expected to grow at only 2–3% annually, far below historical averages.
3. Without diversification into new revenue streams—like carbon trading, digital assets, or market data analytics—ASX risks stagnation as global capital increasingly flows to more dynamic markets.

Valuation-wise, ASX trades at a premium compared to its growth potential, leaving limited upside unless significant operational improvements materialize.

Key Catalysts for Caution

Several near-term developments could intensify the bear case:

1. Regulatory outcomes: ASIC’s final decision on Cboe’s listing approval—and any penalties arising from ongoing probes—could directly impact ASX’s market share and cost structure.
2. Technology risks: Any additional system outages or security breaches would further damage credibility and could trigger stricter regulatory intervention.
3. Dividend strain: With high capex and slow earnings growth, maintaining current dividend levels may stretch payout capacity, especially if revenue slows.
4. Global market trends: As international exchanges evolve toward real-time clearing and digital asset trading, ASX’s relatively slow innovation pace could make it less attractive to institutional capital.

Conclusion: A Changing Landscape for a Market Giant

There’s no denying ASX Ltd’s legacy as the cornerstone of Australia’s financial system. Its track record of stability, profitability, and consistent dividends has earned it a reputation as a dependable stock for income-focused investors.

However, 2025 represents a turning point. Competition is intensifying, regulators are tightening their grip, and the company’s technological credibility has taken a serious hit. With expenses rising and growth opportunities narrowing, the risk-reward balance has shifted.

For investors, the bear case for ASX Ltd is not rooted in short-term volatility—but in structural headwinds that could reshape its business model over the next decade. While the exchange still stands tall, the foundations beneath it are beginning to crack.

In a market where trust, innovation, and efficiency define leadership, ASX must prove it can adapt—or risk being overtaken by faster, more agile rivals.

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