What is the primary function of the Australian Securities Exchange (ASX)?

The Australian Securities Exchange Ltd (ASX) is an Australian public company that operates Australia's primary securities exchange. It also functions as a futures exchange and a clearing house, facilitating the trading of various financial products.

When was the Australian Securities Exchange formed, and what was its foundational structure?

The Australian Securities Exchange (ASX) was formed on 1 April 1987, through legislation enacted by the Australian Parliament. Its formation involved the amalgamation of six independent stock exchanges that had previously operated in the state capital cities of Australia.

What significant merger did the ASX undertake in 2006?

In 2006, the Australian Stock Exchange merged with SFE Corporation, which was the holding company for the Sydney Futures Exchange, thereby integrating derivatives trading into its operations.

What are the current key financial metrics of the ASX, including its average daily turnover and market capitalization?

As of January 2024, the ASX has an average daily turnover of A$4.685 billion and a market capitalization of approximately A$2.6 trillion. These figures highlight its significant role in the global financial landscape.

How does the ASX rank globally among exchange groups and within the southern hemisphere?

The ASX is recognized as one of the world's top 20 listed exchange groups and holds the distinction of being the largest in the southern hemisphere, reflecting its substantial influence in the region.

What is the specific role of ASX Clear within the broader ASX Group?

ASX Clear is the dedicated clearing house for all shares, structured products, warrants, and ASX Equity Derivatives. A clearing house acts as an intermediary, ensuring the smooth and secure settlement of financial transactions.

Beyond market operations, what additional responsibilities does the ASX Group undertake?

In addition to its role as a market operator, the ASX Group functions as a clearing house and payments system facilitator. It also oversees compliance with its own operating rules, actively promotes standards of corporate governance among Australia's listed companies, and contributes to educating retail investors.

How does Australia's financial development compare globally according to the World Economic Forum?

According to the World Economic Forum, Australia's financial development was ranked 5th out of 57 of the world's leading financial systems and capital markets, indicating a robust and advanced financial sector.

What is the global and Asia-Pacific ranking of Australia's equity market based on free-float market capitalization?

Australia's equity market is the 8th largest in the world based on free-float market capitalization and the 2nd largest in the Asia-Pacific region, demonstrating its significant scale and regional importance.

What are the key statistics for Australia's equity market regarding market capitalization and daily secondary trading?

Australia's equity market boasts a market capitalization of A$1.2 trillion and experiences average daily secondary trading of over A$5 billion, reflecting its high liquidity and investment activity.

How do Australia's bond and derivatives markets rank within the Asia-Pacific region?

Australia's bond market is the 3rd largest debt market in the Asia-Pacific, while its derivatives market is the largest for fixed income derivatives in the same region, indicating strong activity in these financial instruments.

What is the global standing of the Australian foreign exchange market, and how do its currency and currency pair rank?

The Australian foreign exchange market is the 7th largest in the world in terms of global turnover. The Australian dollar is the 5th most traded currency globally, and the AUD/USD is the 4th most traded currency pair, highlighting its prominence in international currency trading.

What factor significantly contributes to Australia having one of the largest pools of funds under management globally?

Australia has the largest pool of funds under management in the Asia-Pacific region and the 4th largest globally, largely due to its compulsory superannuation system. Superannuation is a retirement savings scheme where employers contribute a portion of an employee's earnings.

What are the primary markets for funds management in Australia, as mentioned in the source?

The primary markets for funds management in Australia are referred to as the AQUA Markets.

Which regulatory body is primarily responsible for supervising real-time trading and participant conduct on Australia's financial markets?

The Australian Securities & Investments Commission (ASIC) holds the responsibility for supervising real-time trading on Australia's domestic licensed financial markets and overseeing the conduct of participants, including their interactions with clients. ASIC also ensures the ASX's compliance with its own Listing Rules as a public company.

What is the specific function of ASX Compliance?

ASX Compliance is a subsidiary company of the ASX that is tasked with monitoring and enforcing the adherence of ASX-listed companies to the ASX operating rules, ensuring market integrity.

What role does the Reserve Bank of Australia (RBA) play in overseeing the ASX?

The Reserve Bank of Australia (RBA) provides oversight of the ASX's clearing and settlement facilities, primarily to ensure the stability of the financial system.

What diverse range of products and services are available for trading on the ASX?

A wide array of products and services are available for trading on the ASX, including shares, futures, exchange traded options, warrants, contracts for difference, exchange-traded funds, real estate investment trusts, listed investment companies, and interest rate securities.

Which companies are identified as the largest stocks traded on the ASX by market capitalization?

The largest stocks traded on the ASX, based on their market capitalization, include BHP, Commonwealth Bank, Westpac, Telstra, Rio Tinto, National Australia Bank, and Australia & New Zealand Banking Group.

What is the most significant market index on the ASX, and what other indices are commonly referenced?

The major market index on the ASX is the S&P/ASX 200, which tracks the performance of the top 200 shares. The All Ordinaries index, though previously more significant, still runs parallel to the S&P/ASX 200, and other notable indices include the S&P/ASX 100 and S&P/ASX 50.

What are the historical origins of Australia's stock exchanges that led to the formation of the ASX?

The origins of the ASX date back to the mid-1800s, when six independent stock exchanges were established in Australia's state capital cities: Melbourne (1861), Sydney (1871), Hobart (1882), Brisbane (1884), Adelaide (1887), and Perth (1889). A further exchange in Launceston later merged into the Hobart exchange.

How did the Australian Associated Stock Exchanges (AASE) contribute to the standardization of stock market operations in Australia?

The Australian Associated Stock Exchanges (AASE) was established in 1937, formalizing earlier informal meetings among state exchanges. Through the AASE, uniform listing rules for companies, consistent broker rules, and standardized commission rates were gradually introduced, along with ground rules for government loan raisings.

Describe the traditional trading systems used on Australian stock exchanges before automation.

Before automation, trading on Australian stock exchanges evolved from an auction-based call system, where an employee called out company names for brokers to bid or offer, to a 'post' system in the 1960s. In the post system, 'chalkies' (exchange employees) continuously wrote bids and offers on blackboards and recorded transactions.

When was the Stock Exchange Automated Trading System (SEATS) introduced, and what impact did it have?

The Stock Exchange Automated Trading System (SEATS) was launched in 1987. This marked a significant technological leap, replacing the manual call and post systems that had been in use for over a century, and modernizing trading operations.

What unique achievement did the ASX accomplish in 1998 regarding its own listing?

Following its demutualisation, the ASX became the first exchange in the world to have its own shares quoted on its own market when it was listed on 14 October 1998. Demutualisation is the process of converting a member-owned organization into a shareholder-owned company.

What was the initial purpose of the Sydney Greasy Wool Futures Exchange (SGWFE) when it commenced trading in 1960?

When the Sydney Greasy Wool Futures Exchange (SGWFE) began trading in 1960, its original objective was to provide Australian wool traders with hedging facilities within their own country, offering a single contract of greasy wool.

What was the 'Poseidon bubble' and its long-term regulatory consequence in Australia?

The 'Poseidon bubble' was a mining boom in 1969-1970, triggered by a nickel discovery in Western Australia, which caused Australian mining shares to dramatically rise and then crash. This event prompted regulatory recommendations that ultimately led to Australia's national companies and securities legislation.

When were brokers' commission rates deregulated on the ASX, and what was the subsequent trend in these rates?

Brokers' commission rates were deregulated in 1984. Since then, commissions have steadily fallen, with rates from discount internet-based brokers now being as low as 0.12% or even 0.05%.

What incident in 1984 highlighted the need for a back-up trading site for the Sydney Stock Exchange?

On 9 November 1984, the Sydney Stock Exchange closed due to heavy rain and flooding, causing $2 million in damage and suspending all floor trading. This incident underscored the necessity for a resilient trading infrastructure, leading to the establishment of a back-up site outside the Sydney CBD.

When was the Australian Options Market established, and what type of options did it initially trade?

The Australian Options Market was established in 1976, and it initially traded call options, which give the holder the right to buy an asset at a specified price.

How did stamp duty on share transactions change in Australia between 1995 and 2001?

In 1995, stamp duty on share transactions was halved from 0.3% to 0.15% following an agreement with the Queensland State Government. By 2000, stamp duty was completely abolished in all states as part of the introduction of the Goods and Services Tax (GST), and specifically on marketable securities in 2001.

What stake did the ASX acquire in the trading and order management software company IRESS in 2000?

In October 2000, the ASX acquired a 15% stake in IRESS, a company specializing in trading and order management software, which was formerly known as BridgeDFS Ltd.

What are the two primary trading platforms utilized by the ASX Group?

The ASX Group operates two main trading platforms: ASX Trade, which facilitates the trading of ASX equity securities, and ASX Trade24, which is used for derivative securities trading.

Describe the technological capabilities and performance of the ASX Trade platform.

ASX Trade is an ultra-low latency trading platform developed by NASDAQ OMX, based on its Genium INET system. It is recognized globally as one of the fastest and most functional multi-asset trading platforms, capable of delivering latency down to approximately 250 microseconds.

What are the key characteristics and global reach of the ASX Trade24 platform?

ASX Trade24 is the ASX's global trading platform specifically designed for derivatives. It features a globally distributed network with access points in major financial hubs such as Chicago, New York, London, Hong Kong, Singapore, Sydney, and Melbourne. This setup enables true 24-hour trading and the simultaneous maintenance of two active trading days.

What are the standard trading days and hours for the ASX cash market?

The normal trading days for the ASX cash market are weekdays, from Monday to Friday. The market observes a pre-market session from 7:00 am to 10:00 am Sydney time, followed by a normal trading session from 10:00 am to 4:00 pm Sydney time.

How does the ASX manage the opening and closing of its market each trading day?

The ASX market opens alphabetically through single-price auctions, which are phased over the first ten minutes and include a small random time component to prevent precise prediction of initial trades. Daily closing prices are determined by another single-price auction conducted between 4:10 pm and 4:12 pm.

In what forms do security holders typically hold shares on the ASX, and what is notable about these holdings?

Security holders on the ASX hold shares in uncertificated forms, meaning physical share certificates are not issued. The two primary forms are Clearing House Electronic Sub-register System (CHESS) holdings and issuer-sponsored holdings.

Explain the Clearing House Electronic Sub-register System (CHESS) for holding securities.

Under the CHESS system, an investor's controlling participant, typically a broker, sponsors the client. The security holder is then provided with a 'holder identification number' (HIN), and monthly statements are issued from the CHESS system whenever there is a change in their holding during that month.

How do issuer-sponsored holdings differ from CHESS holdings in terms of administration?

With issuer-sponsored holdings, the company's own share register directly administers the security holder's holding. The investor receives a 'security-holder reference number' (SRN), which can be quoted when they wish to sell their shares.

Is short selling allowed on the ASX, and what are the general requirements for it?

Short selling of shares is permitted on the ASX, but only for designated stocks and under specific conditions. ASX trading participants, or brokers, are required to report all daily gross short sales to the ASX, which then makes this aggregated information public.

What alternatives are available for small private investors who wish to engage in short selling but cannot do so directly through many brokers?

For small private investors, who often cannot short sell directly through many brokers, alternatives include Low Exercise Price Options (LEPOs) and Contracts for Difference (CFDs) provided by third-party firms.

Why did ASIC temporarily suspend short selling in 2008, and when was the ban on covered short selling lifted?

The Australian Securities & Investments Commission (ASIC) suspended nearly all forms of short selling in September 2008 due to concerns about market stability during the 2008 financial crisis. The ban on covered short selling was subsequently lifted in May 2009.

What is the key requirement of ASTC Settlement Rule 10.11.12 concerning failed settlements?

ASTC Settlement Rule 10.11.12 mandates that if a 'Failed Settlement Shortfall' exists, typically on the fifth business day after the original scheduled settlement (T+5), the delivering broker must either purchase the required number of financial products on the market to cover the shortfall or acquire them through a securities lending arrangement and deliver them within two business days.

How are options traded on the ASX, and what role do market makers play in providing liquidity?

Options on leading shares are traded on the ASX with standardized strike prices and expiry dates. Liquidity is primarily provided by market makers, who are assigned two or more stocks and engage in competition to facilitate trading.

What are the two methods by which market makers provide liquidity for options on the ASX?

Market makers can provide liquidity for options in two ways: by continuously making a market on a set of 18 options, or by making a market in response to a specific quote request for any option with an expiry date up to 9 months out. Both methods are subject to minimum quantity requirements and maximum permitted spreads.

What is the requirement for brokers before allowing clients to trade options on the ASX?

Due to the inherent higher risks associated with options trading, brokers are required to assess and confirm clients' suitability before granting them permission to trade options.

What constitutes the 'Interest rate market' on the ASX?

The ASX interest rate market encompasses corporate bonds, floating rate notes, and bond-like preference shares that are listed and traded on the exchange.

How are securities in the ASX interest rate market traded, and what additional information does the ASX provide for them?

Securities in the ASX interest rate market are traded and settled in the same manner as ordinary shares. To assist investors in comparing these securities, the ASX provides additional information such as their maturity dates and effective interest rates.

What was the standing of the Sydney Futures Exchange (SFE) before its integration into the ASX?

Before its integration, the Sydney Futures Exchange (SFE) was recognized as the 10th largest derivatives exchange globally, offering a range of derivatives in interest rates, equities, currencies, and commodities.

What are some of the most actively traded futures products on the ASX that originated from the former Sydney Futures Exchange?

Some of the most active futures products traded on the ASX, which were part of the former Sydney Futures Exchange, include SPI 200 Futures (based on the top 200 ASX stocks), AU 90-day Bank Accepted Bill Futures (Australia's equivalent of T-Bill futures), 3-Year Bond Futures, and 10-Year Bond Futures.

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Introduction to the ASX

A National Institution

The Australian Securities Exchange (ASX) is the nation's primary securities exchange. Formed on April 1, 1987, through the amalgamation of six state-based exchanges, it provides a marketplace for trading equities, derivatives, and other financial instruments. In 2006, it merged with the Sydney Futures Exchange, solidifying its role as a comprehensive market operator. The ASX is not just a marketplace; it is also a public company, ASX Limited, listed on its own exchange.

Global & Regional Significance

The ASX is a major player in global finance. With a market capitalisation of approximately A$2.6 trillion as of early 2024, it ranks among the world's top 20 listed exchange groups. It holds the position of the largest exchange in the Southern Hemisphere and the second largest in the Asia-Pacific region by free-float market capitalisation. This scale is supported by Australia's robust funds management industry, which boasts the fourth-largest pool of managed funds globally, largely driven by the compulsory superannuation system.

The Regulatory Framework

The integrity of the ASX is maintained through a multi-layered regulatory structure:

ASIC (Australian Securities & Investments Commission): Supervises real-time trading and the conduct of market participants. ASIC also ensures ASX Limited's own compliance with listing rules.
ASX Compliance: A subsidiary responsible for monitoring and enforcing the compliance of listed companies with ASX operating rules.
RBA (Reserve Bank of Australia): Oversees the ASX's clearing and settlement facilities to ensure the stability of the broader financial system.

The Evolution of the Exchange

From States to a Nation

The ASX's roots trace back to the mid-19th century gold rush, which spurred the creation of separate stock exchanges in each state capital, beginning with Melbourne in 1861. For decades, these exchanges operated independently. In 1937, the Australian Associated Stock Exchanges (AASE) was formed to standardize rules for listings, brokers, and commissions, marking the first major step toward a unified national market.

The Trading Floor Era

Early trading was a manual, voice-driven process. The "call system" involved an exchange employee shouting company names while brokers bid and offered. This was later replaced by the "post system" in the 1960s, where exchange employees known as "chalkies" would manually write bids and offers on blackboards. This physical, open-outcry method remained the standard until the digital revolution of the late 1980s.

Key Historical Milestones

The modern ASX was shaped by several transformative events. The national, unified exchange was officially formed in 1987, the same year it launched its first electronic trading system, SEATS.

1861: Australia's first stock exchange is established in Melbourne during the gold rush.
1937: The Australian Associated Stock Exchanges (AASE) is formed to create uniform rules.
1969-70: The Poseidon nickel boom and subsequent crash highlight the need for stronger national regulation.
1987: The six state exchanges amalgamate to form the Australian Stock Exchange (ASX). The Stock Exchange Automated Trading System (SEATS) is launched, ending the "chalkie" era.
1994: The ASX introduces Low Exercise Price Options (LEPOs), expanding its derivatives offerings.
1998: ASX becomes the first exchange in the world to demutualise and list its own shares on its market.
2006: The ASX merges with the Sydney Futures Exchange (SFE), creating a fully integrated market for equities and derivatives.
2011: A proposed merger with the Singapore Exchange (SGX) is blocked by the Australian Government on national interest grounds.

Trading Systems & Hours

ASX Trade: The Equities Engine

All equity securities on the ASX are traded via ASX Trade, an ultra-low latency platform based on NASDAQ OMX's Genium INET system. This technology, used by exchanges globally, is engineered for high speed and reliability, capable of executing trades with a latency as low as approximately 250 microseconds. This ensures efficient price discovery and execution for all market participants.

ASX Trade24: A Global Derivatives Platform

Derivatives are traded on the ASX Trade24 platform, which is designed for global, 24-hour access. It features a distributed network with access points in major financial hubs like Chicago, London, Hong Kong, and Singapore. A key feature is its ability to maintain two active trading days simultaneously, allowing new products to open for trading in one time zone while others are still active under the previous day's session.

The Trading Day Explained

The ASX operates on weekdays, excluding national public holidays. The trading day is structured to ensure an orderly market opening and closing.

All times are in Sydney time (AEST/AEDT).

7:00am - 10:00am: Pre-market session. Brokers can enter orders into the system in preparation for the market open.
10:00am - 10:10am (approx.): Market Open. The market opens via a series of single-price auctions, phased alphabetically by stock code. A small random element is included to prevent precise timing of the first trades.
10:00am - 4:00pm: Normal Trading. Continuous trading occurs where buyers and sellers are matched in real-time.
4:00pm - 4:10pm: Pre-Closing Single Price Auction. The market prepares for the closing auction.
4:10pm - 4:12pm: Closing Single Price Auction. A final auction determines the daily closing price for each security.

Market Products & Instruments

Equities and Indices

The core of the ASX is its equity market, where shares in public companies are bought and sold. The performance of this market is tracked by a family of indices managed in partnership with Standard & Poor's. The benchmark index is the S&P/ASX 200, which represents the 200 largest eligible companies. Other key indices include the S&P/ASX 20, S&P/ASX 50, and the broader All Ordinaries.

Derivatives: Futures & Options

The ASX offers a deep and liquid derivatives market, largely inherited from the Sydney Futures Exchange. Key products include:

Futures: Contracts to buy or sell an asset at a predetermined future date and price. Popular contracts include the SPI 200 Index Futures and futures on 3-year and 10-year Australian government bonds.
Options: Contracts giving the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a certain date. Options are available on many leading shares.

Other Traded Products

Beyond standard shares and derivatives, the ASX provides a diverse range of investment vehicles:

Exchange-Traded Funds (ETFs): Managed funds that trade like shares, offering diversified exposure to indices, sectors, or commodities.
Real Estate Investment Trusts (REITs): Companies that own and operate income-producing real estate.
Interest Rate Securities: Includes corporate bonds and floating-rate notes, which trade and settle like shares.
Warrants: A derivative that gives the right to buy or sell a security at a certain price before expiration.

Market Mechanics & Operations

Settlement: The CHESS System

The ASX operates on an uncertificated, electronic system for share ownership. The Clearing House Electronic Sub-register System (CHESS) is the central component. Most investors hold shares through a broker who "sponsors" them into CHESS, assigning them a Holder Identification Number (HIN). This system facilitates the T+2 settlement cycle, where the transfer of money and securities is completed two business days after a trade is executed. The alternative is an "issuer-sponsored" holding, managed directly by the company's share registry.

Short Selling Regulations

Short selling, the practice of selling a security one does not own with the intent of repurchasing it later at a lower price, is permitted on the ASX under strict conditions. Brokers must report all daily gross short sales to the ASX, which then publishes aggregated data to the market. This transparency is designed to maintain market stability. During periods of extreme volatility, such as the 2008 financial crisis, the regulator ASIC has the power to temporarily ban or restrict short selling to protect market integrity.

The ASX Sharemarket Game

As part of its educational mandate, the ASX runs the Sharemarket Game, a simulation for students and the public. Participants are given a hypothetical A$50,000 to invest in a selection of real companies, using live market data over a set period. This interactive tool provides a risk-free environment to learn the principles of sharemarket investing, portfolio management, and market dynamics.

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References

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Important Notice

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Australia's Financial Engine

💡 Dive in with Flashcard Learning! 💡

Introduction to the ASX ℹ️

🏛️ A National Institution

🌏 Global & Regional Significance

⚖️ The Regulatory Framework

The Evolution of the Exchange 📜

🏙️ From States to a Nation

🗣️ The Trading Floor Era

🗓️ Key Historical Milestones

Trading Systems & Hours 💻

⚡ ASX Trade: The Equities Engine

🌐 ASX Trade24: A Global Derivatives Platform

⏰ The Trading Day Explained

Market Products & Instruments 📊

📈 Equities and Indices

💹 Derivatives: Futures & Options

📋 Other Traded Products

Market Mechanics & Operations ⚙️

🔗 Settlement: The CHESS System

📉 Short Selling Regulations

🎮 The ASX Sharemarket Game

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📜 Important Notice

Dive in with Flashcard Learning!

Introduction to the ASX

A National Institution

Global & Regional Significance

The Regulatory Framework

The Evolution of the Exchange

From States to a Nation

The Trading Floor Era

Key Historical Milestones

Trading Systems & Hours

ASX Trade: The Equities Engine

ASX Trade24: A Global Derivatives Platform

The Trading Day Explained

Market Products & Instruments

Equities and Indices

Derivatives: Futures & Options

Other Traded Products

Market Mechanics & Operations

Settlement: The CHESS System

Short Selling Regulations

The ASX Sharemarket Game

Teacher's Corner

True or False?

Test Your Knowledge!

Gamer's Corner

Discover other topics to study!

References

Feedback & Support

Disclaimer

Important Notice