The Australian StockExchange (ASX) is gearing up to meet a number of risk-related challenges following its merger with the Sydney Futures Exchange (SFE), according to ASX CEO Robert Elstone.

The ASX, which recently completed its merger with the SFE, is now facing the challenge of integrating risk management systems, appetites and cultures post-merger. Although the initial stages of the merger involve analysing any potential overlaps in systems, people and processes, Elstone said the second phase will focus on synchronising operations across the two entities.

That brings its own risk challenges, he said. “In that second phase of the merger we will be looking at synchronisation of trading rules and processes where relevant,” Elstone said. However, he added, merging and standardising risk management processes will be no easy task. “We do have a challenge in harmonising both risk appetite, stress testing and margin technologies across both clearing houses.”

However, that challenge could be made easier through a new risk management system. According to John Hayes, chief financial officer at the ASX, it’s a major project that will incur ongoing expenses. “The other systems that we are working on are not large, but there is a new risk management system being developed and there will be expenses for that over the next couple of years,” he said.

The new system, which is set to cost around $4.4 million, is planned to be operational by the second quarter of 2007. ASX sources said the system –which aims to enhance the exchange’s clearing risk management capabilities –will be focused on improving risk monitoring, with particular emphasis on stress testing and intraday risk calculations. A spokesperson for the ASX would not say who is developing the system.

Elstone, who took over from Tony D’Aloisio in July, was chair of National Australia Bank’s risk committee and is a board member of the Federal Government’s Future Fund, also alluded to the ASX’s enviable record of business continuity, but predicted that would be difficult to recreate across SFE’s operations.

ASX core applications have 99.9 per cent uptime, but given SFE’s longer trading hours, the challenge is on to maintain the record. “The only note of caution there is that’s a system which operates between 10am and 4pm whereas 99.9 per cent uptime on Sycom [the SFE’s electronic trading platform] is a system which operates for 22 hours a day. So again a word of caution that one operates during our daylight hours and one operates during our night ours and while we are all asleep. But really they are staggeringly good. I won’t say touch wood, I have a lot more confidence than Martin [Davey, SFE CFO]. They are staggeringly good latency and availability stats.”