The submissions deadline for the federal government’s Asia review, conducted by former Treasury head Ken Henry, closed last Friday. And yet only four companies made direct submissions: Rio Tinto, ANZ Bank, Insurance Group Australia and the ASX. Others were involved in industry group submissions but it’s an indictment of the Australian business community for failing to take an interest in this important issue.

In its submission, the ASX states “Australia is not a financial centre and current policy settings will not make it one”. It says the Australian financial services sector is domestic, inward looking and “this domestic focus is evident in Australia’s capital markets: the financial products traded, cleared and settled in Australia are largely Australian dollar based, and most transactions involve Australian consumers or companies. In relation to equity markets, 95% of listed entities are Australian companies.”

So what are we then to make of the ASX’s performance when there is a small, but growing example of where it has missed the boat in a commodity Australia dominates? The ASX could have stolen a march on the rest of the world, especially in Asia, and contributed to the national good.

The ASX tried to marry the Singapore Stock Exchange 18 months ago, but that was blocked by the federal government, a decision that has been vindicated by the sharp fall in activity on the SGX and a slump in earnings. The ASX seems terribly interested in all things equity and equity-based, such as options and other derivatives. Commodities (which came to the ASX, via the merger with the Sydney Futures Exchange) seem to be second rate, except for bond futures and the share price index futures contract. Actual physical commodities appear as they are in the too-hard basket, despite Australia being a major producer of many of these, especially iron ore, coal (coking, thermal and PCI-type coal).

The SFE has moved into environmental commodities, such as carbon, natural gas and electricity, but it has let slip a once-in-a-lifetime opportunity to grab the lead in our biggest export, iron ore.

For all the ASX’s fine words about Australian financial services and the Asian future, the missed opportunity in iron ore stands out. Singapore has grabbed it instead. The world’s first and only global Metal Bulletin Iron Ore (MBIO) Index Futures Contract (SMMBIO) is traded on the Singapore Mercantile Exchange (SMX) when it should really be based in Australia, given we are the world’s second biggest producer and exporter after Brazil.

This contract has been traded since being launched in August of last year. In February this year, the SMX said 1,479,800 tones of iron ore were traded, “a new high since the launch of this unique contract on August 12, 2011. The total volume traded in February was 14,798 lots valued at $US213.37 million.”

This is yet another example where a major commodity produced by Australia is being exploited by someone else in another country. Iron ore is our major export, thanks to China and the activity of companies such as BHP Billiton and Rio Tinto and Fortescue Metals. The failure of companies such as ASX to aggressively move into this space is quite clear. Value-adding trading and price setting benefits will flow to the Singapore economy and the SMX, when, as one of the world’s major suppliers, with two of the top three companies, it should really be run here.

Electronics and the internet make an Australian iron ore futures contract as viable as one based in Singapore, London, Chicago or Shanghai. But the ASX and other financial groups have ignored the chance to steal a march on the rest of the world and become a de facto market leader in iron ore. Coal is another that could be traded here, but there’s been no active sign of interest in such a contract

BHP and Rio have led the drive (especially BHP) towards short-term pricing of iron ore on a monthly, quarterly or spot price, which is based on an internationally accepted price index, such as the one being promoted by the Metal Bulletin, the world’s foremost publication reporting on the metals sector, from steel, iron ore through to copper, lead zinc and the rarer industrial metals. There’s another index run by the Platts group, which is owned by McGraw Hill (Platts sets the Tarpis oil price in Singapore, which is used to price Australian oil and petrol products). Platts’ iron ore business is based in Singapore as well.

Pilbara iron ore fines of 62% Fe content is one of the main ore types traded and priced through the MB Index and the Platts’ rival: the price is landed in North China. Other ore types are also quoted (as low as 58% Fe, which is similar to Fortescue’s fines) and as high as 65% (India and some Brazilian ore). The ICE (Intercontinental Commodity Exchange clears swaps priced off the Platts benchmark iron ore index. ICE is based in the US and London. This is another product/service that an aggressive ASX (prompted by BHP and Rio) could now be providing globally.

The SMX said the February contract saw rising levels of interest from exporters especially from India and importers and steel mills in China.

And what is the Singapore Mercantile Exchange? Well it’s entrepreneurial, trades commodities futures and options across Asia such as metals, (base and precious) and agricultural products and has been operating since 2010. It is backed by Financial Technologies (India) Limited — which has successfully established 10 exchanges across India, Dubai, Singapore, Africa, Mauritius and Bahrain.

There is a lot of talk about how we should be lifting our performance in Asia and going deeper into services and other areas. This iron ore contract, small as it is, is symbolic of the gap we first have to bridge at home, not in Asia. Trading iron ore futures should be a natural in Australia given modern communications and the internet. And yet the ASX seems to have been too pre-occupied by the Singapore takeover and the arrival of a competing exchange in Chi-X. The same criticism applies to regulators and the federal government.