Australian Securities Exchange
|Australian Securities Exchange|
|No. of listings||2192 (30 June 2010)|
|MarketCap||AU$1.65 trillion (30 June 2010)|
|Type||Public (ASX: ASX)|
|Founded||1987, but dating back to 1861|
|Key people||David Gonski, (Chair)|
Robert Elstone, (CEO and Managing Director)
Alan Bardwell, CFO
Eric Mayne, CSO
|Revenue||▲ A$624.38 million (2008)|
|Employees||560 (30 June 2008)|
The Australian Securities Exchange (ASX) is the primary stock exchange in Australia. The ASX began as separate state-based exchanges established as early as 1861. Today trading is all-electronic and the exchange is a public company, listed on the exchange itself.
The Australian Securities Exchange as it is now known resulted from the merger of the Australian Stock Exchange and the Sydney Futures Exchange in December 2006, becoming the 9th largest stock exchange in the world.
The biggest stocks traded on the ASX, in terms of their market capitalisation, include BHP Billiton, Commonwealth Bank of Australia, Telstra Corporation, Rio Tinto, National Australia Bank and Australia and New Zealand Banking Group. As at March 2010 the three largest sectors by market capitalisation were financial (36%), metal and mining (22%) and consumer (13%).
The major market index is the S&P/ASX 200, an index made up of the top 200 shares in the ASX. This supplanted the previously significant All Ordinaries index, which still runs parallel to the S&P ASX 200. Both are commonly quoted together. Other indices for the bigger stocks are the S&P/ASX 100 and S&P/ASX 50.
The ASX is a public company, and its own shares are traded on the ASX. However, the corporation's charter restricts maximum individual holdings to a small fraction of the company.
While the ASX regulates other listed companies listed on the ASX, it cannot regulate itself, and is regulated by the Australian Securities and Investments Commission (ASIC).
The current managing director Robert Elstone was appointed in July 2006. Prior to the merger of ASX with the Sydney Futures Exchange (SFE), Robert Elstone was the CEO of the SFE.
Sydney Exchange Centre Entrance
ASX Group can be described as a multi-asset class and vertically integrated exchange group. Its activities include primary and secondary market services, including the raising, allocation and hedging of capital flows, trading and price discovery (Australian Securities Exchange); central counterparty risk transfer (via subsidiaries of ASX Clearing Corporation); and securities settlement for both the equities and fixed income markets (via subsidiaries of ASX
ASX offers products and services including shares; futures, exchange traded options, warrants, contracts for difference, exchange traded funds, real estate investment trusts, listed investment companies and interest rate securities.
ASX functions as a market operator, clearing house and payments system facilitator. It oversees compliance with its operating rules, promotes standards of corporate governance among Australia’s listed companies. It has a role in the education of retail investors, providing educational materials relating to its products including free online courses.
ASX operates two trading, clearing and settlement platforms, one for equity and related equity derivative products traded on an integrated trading platform between the hours of 10:00am and 4:00pm (AEST); and one for a suite of interest rate, equity index and commodity futures (and options on futures) products as well as Contracts For Difference (CFD), traded on a globally distributed 24 hour platform.
Monitoring and enforcement of compliance with its operating rules is performed by its wholly-owned subsidiary, ASX Compliance.
Operations of the ASX Group are regulated by the Australian Securities and Investments Commission (ASIC) which regulates all trading venues and clearing and settlement facilities, and supervises ASX’s own compliance as a listed public company. The Reserve Bank of Australia (RBA) also provides oversight in relation to compliance with financial stability standards for ASX’s central counterparties and securities settlement facilities.
ASX has a pre-market session from 07:00am to 10:00am AEST and a normal trading session from 10:00am to 04:00pm AEST. The market opens alphabetically in single-price auctions, phased over the first ten minutes, with a small random time built in to prevent exact prediction of the first trades. There is also a single-price auction between 4:10pm and 4:12pm to set the daily closing prices. As of 30 March 2007, 2014 stocks were listed on the ASX with a total market capitalisation of A$1.39 trillion (US$1.098 trillion). At the end of 2004 it was the 8th largest world equity market (on free float basis), comprising around 2.2% of the MSCI World index. Market turnover during 2004 was $A779bn.
Brokers that dominate market share in Australia (in decreasing order) include Macquarie Bank, Goldman Sachs JBWere, UBS, Citigroup, Merrill Lynch, CSFB, Deutsche Bank, ABN AMRO, CommSec and Morgan Stanley. Retail investors account for around 20% of market turnover. Market ownership is broken down as 30% institutional, 40% foreign, 30% retail.
Sydney Stock Exchange in 1959
Sydney Exchange Centre
Sydney Exchange Centre entrance
The exchange began as six separate exchanges established in the state capitals Melbourne (1861), Sydney (1871), Hobart (1882), Brisbane (1884), Adelaide (1887) and Perth (1889). A further exchange in Launceston merged into the Hobart exchange.
The first interstate conference was held in 1903 at Melbourne Cup time. The exchanges then met on an informal basis until 1937 when the Australian Associated Stock Exchanges (AASE) was established, with representatives from each exchange. Over time the AASE established uniform listing rules, broker rules, and commission rates.
Trading was conducted by a call system, where an exchange employee called the names of each company and brokers bid or offered on each. In the 1960s this changed to a post system. Exchange employees called "chalkies" wrote bids and offers in chalk on blackboards continuously, and recorded transactions made.
The ASX (Australian Stock Exchange Limited) was formed in 1987 by legislation of the Australian Parliament which enabled the amalgamation of six independent stock exchanges that formerly operated in the state capital cities. After demutualisation the ASX was the first exchange in the world to have its shares quoted on its own market. The ASX was listed on 14 October 1998. On 7 July 2006 the Australian Stock Exchange merged with SFE Corporation, holding company for the Sydney Futures Exchange.
Timeline of significant events
1969–1970: The Poseidon bubble (a mining boom triggered by a nickel discovery in Western Australia) caused Australian mining shares to soar and then crash, prompting regulatory recommendations that ultimately led to Australia's national companies and securities legislation.
1976: The Australian Options Market was established, trading call options.
1980: The separate Melbourne and Sydney stock exchange indices were replaced by Australian Stock Exchange indices.
1984: Brokers' commission rates were deregulated. Commissions have gradually fallen ever since, with rates today as low as 0.12% or 0.05% from discount internet-based brokers.
1987: Following work begun in 1985, the separate exchanges merged to form the ASX. Also in 1987, the all-electronic SEATS trading system (below) was introduced. It started on just a limited range of stocks; progressively all stocks were moved to it and the trading floors were closed in 1990.
1990: A warrants market was established.
1993: Fixed-interest securities were added (see Interest rate market below). Also in 1993, the FAST system of accelerated settlement was established, and the following year the CHESS system (see Settlement below) was introduced, superseding FAST.
1994: The Sydney Futures Exchange announced trading in futures over individual ASX stocks. The ASX responded with the Low Exercise Price Option or LEPO (see below). The SFE went to court, claiming that LEPOs were futures and therefore that the ASX could not offer them. However, the court held they were options and so LEPOs were introduced in 1995.
1995: Stamp duty on share transactions was halved from 0.3% to 0.15%. The ASX had agreed with the Queensland State Government to locate staff in Brisbane in exchange for the stamp duty reduction there, and the other states followed suit so as not to lose brokerage business to Queensland. In 2000 stamp duty was abolished in all states as part of the introduction of the GST.
1996: The exchange members (brokers etc.) voted to demutualise. The exchange was incorporated as ASX Limited and in 1998 the company was listed on the ASX itself, with the Australian Securities and Investments Commission enforcing the listing rules for ASX Limited.
1997: A phased transition to the electronic CLICK system for derivatives began.
2001: Stamp duty on marketable securities was abolished.
2006: The ASX announced a merger with the Sydney Futures Exchange, the primary derivatives exchange in Australia.
Trading systems (SEATS/ITS)
Since 2 October 2006, trading of shares, warrants, fixed-interest securities and company-issued options and rights has been conducted on the Click-XT system, also known as the Integrated Trading System (ITS). The Integrated Trading System processes more transactions per second than the older Stock Exchange Automated Trading System (SEATS), and allows multi-order transactions (up to 5 orders per transaction).[clarification needed] SEATS was an all-electronic order matching system, based on time and price priority, and accepted market orders (to buy or sell at market price) or limit orders (to buy at no more than a given price, or to sell at no less than a given price).
Investors hold shares in one of two forms. Both operate as uncertificated holdings (rather than through the issue of physical share certificates):
Issuer-sponsored. The company's share register administers the investor's holding and issues the investor with a security-holder reference number (SRN) which may be quoted when selling.
Clearing House Electronic Sub-register System (CHESS). The investor's controlling participant (normally a broker) sponsors the client into CHESS. The investor is given a holder identification number (HIN) and monthly statements are sent to the investor from the CHESS system when there is a movement in their holding that month.
Holdings may be moved from issuer-sponsored to CHESS or between different brokers by electronic message initiated by the controlling participant.
Short selling of shares is permitted on the ASX, but only among designated stocks and with certain conditions:
The sell order must be at a price not lower than the last trade ('uptick rule').
No more than a total 10% of the shares on issue may be sold short. (Brokers report net short positions to the ASX daily.)
Margin cover of 20% of the current share price must be posted.
Many brokers do not offer short selling to small private investors. LEPOs (below) can serve as an equivalent, while contracts for difference (CFDs) offered by third-party providers are another alternative.
In September 2008, ASIC suspended nearly all forms of short selling due to concerns about market stability in the ongoing global financial crisis.The ban on covered short selling was lifted in May 2009.
Options on leading shares are traded on the ASX, with standardised sets of strike prices and expiry dates. Liquidity is provided by market makers who are required to provide quotes. Each market maker is assigned two or more stocks. A stock can have more than one market maker, and they compete with one another. A market maker may choose one or both of:
Make a market continuously, on a set of 18 options.
Make a market in response to a quote request, in any option up to 9 months out.
In both cases there is a minimum quantity (5 or 10 contracts depending on the shares) and a maximum spread permitted.
Due to the higher risks in options, brokers must check clients' suitability before allowing them to trade options. Clients may both take (i.e. buy) and write (i.e. sell) options. For written positions, the client must put up margin.
Low exercise price options
A Low Exercise Price Option (LEPO) is a European-style call option with a low exercise price of $0.01 and a contract size of 1000 shares to be delivered on exercise. LEPOs are traded on margin, and a trader may take a long or short position. Market makers ensure continuous price quotations.
LEPOs work like a futures contract. Being European-style, they cannot be exercised until expiry. The premium is practically the whole share price, and a trader only posts margin, not the full price.
LEPOs were introduced in 1994, in response to the Sydney Futures Exchange offering futures over individual ASX shares. Regulations at the time prevented the ASX offering futures contracts, hence the LEPO form. Presently LEPOs are available on 47 leading stocks.
Interest rate market
The ASX interest rate market is the set of corporate bonds, floating rate notes, and bond-like preference shares listed on the exchange. These securities are traded and settled in the same way as ordinary shares, but the ASX provides information such as their maturity, effective interest rate, etc., to aid comparison.
The Sydney Futures Exchange (SFE) – now a part of the ASX – was the 10th largest derivatives exchange in the world, providing derivatives in interest rates, equities, currencies and commodities. It provided futures and options on the four most actively traded markets - interest rates, equities, currencies and commodities including wool and cattle. Its most active products are:
SPI 200 Futures – Futures contracts on an index representing the largest 200 stocks on the Australian Stock Exchange by market capitalisation.
AU 90-day Bank Accepted Bill Futures – Australia's equivalent of T-Bill futures.
3-Year Bond Futures – Futures contracts on Australian 3-year bonds
10-Year Bond Futures – Futures contracts on Australian 10-year bonds.
The ASX trades futures over the ASX 50, ASX 200 and ASX property indexes, and over grain, electricity and wool. Options over grain futures are also traded.
Futures are traded on DTP, the Derivatives Trading Platform (also known as CLICK).
The ASX maintains stock indexes concerning stocks traded on the exchange in conjunction with Standard & Poor's. There is a hierarchy of index groups called the S&P/ASX 20, S&P/ASX 50, S&P/ASX 100, S&P/ASX 200 and S&P/ASX 300, notionally containing the 20, 50, 100, 200 and 300 largest companies listed on the exchange, subject to some qualifications.
Schools' Sharemarket Game
ASX's Schools' Sharemarket Game provides school students with the opportunity to hypothetically invest $50,000 in the stock exchange. Students buy and sell shares at current market prices and track the progress of their investments over a ten-week period.
The Australian Securities and Investments Commission (ASIC) regulates the ASX with an element of self-regulation, creating "co-regulation". There are at least 20 examples of co-regulation:
As a licensed market, ASX has legal obligations under Corporations Act 2001 (Cth) (s792A, Part 7.2, Div 3) to run a market which is "fair, orderly and transparent".
ASX must give information to ASIC regarding listed companies: s 792C.
ASX must assist ASIC: s 792D.
ASX must give ASIC access to the market: s 792E.
ASX can "refer" matters to ASIC for further investigation.
ASX must lodge an annual compliance report with ASIC: s 792F.
ASX's Operating Rules are binding in contract: s 793B.
ASIC must be informed of any changes to ASX Operating Rules: s 793D.
ASX's Operating Rules may be disallowed by the Minister (Treasury): s 793E.
ASIC has oversight of all market licensees including ASX.
ASX must notify ASIC of disciplinary actions it takes against participants: s 792B.
ASX's Operating Rules are enforceable by ASIC, the market licensee (ASX), clearing house or "a person aggrieved": s 793C.
The Minister can give directions to ASX: s 794A.
The Minister can call for a report on specified matters regarding ASX: s 794B.
ASIC must complete an annual assessment of ASX's compliance with the law: s794C.
ASIC can give ASX directions to suspend dealings or some other direction to ensure a fair and orderly market: s 794D.
The Minister may impose conditions on ASX's Australian Market Licence: s 796A.
Since ASX is itself a public company listed on ASX, ASIC regulates ASX.
There are limits on the control of ASX (max 15% ownership by one person): Part 7.4, Div 1
ASX Markets Supervision Pty Ltd, a subsidiary of ASX, is responsible for supervising market operations. It was created to address the perceived conflict between ASX’s regulatory and commercial functions.
ASIC can investigate ASX: Part 3, ASIC Act 2001 (Cth)