Investor sentiment in Australia yesterday appeared to indicate the deal would not proceed because of the high regulatory thresholds in place to prevent such a takeover happening.
Craigs Investment Partners broker Chris Timms said the Singapore Exchange had offered $A48 a share to take over the ASX, valuing it at $8.4 billion.
Around 43% of the offer would be in cash and the rest in SGX shares.
At that level, the offer reflected a 37% premium over ASX's last traded price of $A34.96 on Friday before shares of both companies were suspended.
The shares traded above $A40 on Monday, but yesterday were down more than 5.5% to $A39.50 as some investors decided the deal would not go ahead.
Both the Singapore Exchange and the ASX were under pressure to expand and find new business opportunities and counter the threat of alternative trading systems.
ASX had also been looking at new business opportunities before the end of its monopoly in 2011, Mr Timms said.
"While a combined regional exchange makes strategic sense, the ASX is viewed as an asset of national interest with an ownership cap of 15%.
"The key to this merger gaining regulatory approval is whether it is deemed to be `in the national interest', in which case the Government can raise the cap," he said.
The Australian reported that the Australian Federal coalition and the Greens were prepared to work together to stop the takeover.
Opposition treasury spokesman Joe Hockey said the Julia Gillard-led Government must prove that the proposed takeover was in Australia's national interest considering the large share of the Singapore Exchange was owned by the the Asian state's central bank.
"It is of great concern, unless it can be proven otherwise, that our major regional competitor is buying out our main stock exchange," he said.
Green leader Senator Bob Brown said his party had strong concerns about the takeover and the Greens would not support it unless it was proven to be in the national interest.
"We want to know what the impact will be, not only on the Australian market and shareholders but also on superannuation accounts and financial service and other workers," he said.
Politicians in Canberra will have to approve the deal, which would require a change in Australian regulatory law.
Under Australian corporate law, no single shareholder could own more than 15% of the ASX and any proposal to lift that threshold must be tabled in Parliament for 15 days of debate.
That gave MPs time to table a disallowance motion that could block the bid if passed.
Australia's foreign investment laws also required approval from Treasurer Wayne Swan, who would take advice from the Foreign Investment Review Board.
Mr Timms said that while the ASX board had unanimously recommended the proposal, subject to endorsement from an independent expert and no higher alternative bid, the market was assigning a degree of probability that the merger might not proceed.
"With at least six months to go before we get a clearer indication of whether the merger will receive the required approvals, we maintain our hold recommendation on the ASX."
A combined ASX/SGX would have pro forma revenue of about $A1.9 billion and pro forma earnings before interest, tax, depreciation and amortisation of $A707 million, based on the audited financial statement of both exchanges for the year ended June 30.
In contrast, the NZX had earnings of $42 million and adjusted operating earnings of about $14 million in the last full-year report.
Asked how the merger, if approved, would affect the NZX, Mr Timms said some of the country's larger companies, like Fletcher Building, Telecom and Contact Energy, might consider listing only on the ASX, to give them access to the wider regional pool of investors and perhaps reduce their overall listing costs.
Fletcher and Telecom were already dual-listed and the disclosure requirements in Australia were close to those in New Zealand.
The NZX could be used as a stepping stone by smaller companies who aimed to eventually list on the ASX and move into the broader Australian-Asian markets, he said.
Forsyth Barr broker Suzanne Kinnaird said she had seen commentary suggesting it would lead to more NZX-listed companies heading offshore.
"I'm not so sure that will be the outcome. As it is, New Zealand companies often go from being a large fish in a small pond, to being a small fish in a large pond.
"A SGX/ASX merged entity would be a Goliath compared to the NZX and most New Zealand companies would struggle to get recognised. Dual listings may potentially become more prevalent," she said.
