Australian Securities Exchange (ASX)
What is the Australian Securities Exchange?
Australian Securities Exchange is the prime stock exchange in Australia. It is also one of the leading stock exchanges globally and regionally competes with exchanges in Shanghai, Hong Kong, Japan, Taiwan, South Korea. ASX was incorporated in the year 1987 after the amalgamation of six state-based stock exchanges. The exchange is incorporated under the legislation of the Australian Parliament & is owned by the Australian Securities Exchange Ltd, or ASX Limited,
ASX offers a range of products to market participants, including equity, bonds, hybrids, ETFs, ETPs, managed funds, warrants, index derivatives, interest-rate derivatives, energy derivatives, grains derivatives, options.
ASX is just not an exchange for trading but it incorporates other functions like being a market operator, oversees compliance with its operating rules, corporate governance, clearing house & payments system facilitator and educates retail investors.
Business as usual in equities at the exchange kicks-off at 7 AM and brokers start entering orders and trades are captured, this duration is called pre-open market. At 10 AM, the trading session opens and takes 10 mins to publish the opening prices for the listed assets, which hit exchange boards in five separate groups. Normal trading on ASX ends at 4 PM.
A brief history of ASX
The first company was incorporated in New South Wales in the early 19th century. It continues to serve Australia since its founding in 1817 as The Bank of New South Wales – now known as Westpac Banking Corporation (ASX:WBC).
In the wake of gold rush in the 19th century, several stock exchanges were formed in Australia, including Sydney Stock Exchange, Brisbane Stock Exchange, Perth Stock Exchange – predecessors to ASX.
In 1885, BHP Group Limited (ASX:BHP) went public, which was incorporated two years before the listing as The Broken Hill Proprietary Company Limited.
In 1937, there was a consensus among stock exchanges in Australia, leading to uniform listing requirements, rule and brokerage. The consortium was known as the Australian Associated Stock Exchanges (AASE).
Sydney Greasy Wool Futures Exchange (SGWFE) had great success after establishing in 1960, providing hedging facilities to Australian wool traders. In 1972, the futures exchange changed its name to Sydney Futures Exchange (SFE).
In 1962, stocks started trading under three-letter company codes in Sydney, which was also replicated in Melbourne after success. As a result of technological advancements in the 1960s, the Sydney Stock Exchange also installed its first computer having got the delivery in seven parts. Now brokers were able to see last, bid and offer prices at their desks through a joint venture between Reuters and Sydney Stock Exchange.
In 1970, New South Wales adopted the Security Industry Act to promote ethical standards in the industry. Four years later, the Australian Government recommended the need of corporate regulator through a Select Committee report, and the Australian Securities Investment Commission (ASIC) came to existence.
Six years later, the Sydney Stock Exchange started options trading, which was the first market for exchange-traded options outside of North America. A popular stock market games, which still runs today, was initiated in 1977.
Over the next decade, capital markets in the country embraced further technological advancements and introduced new products like gold futures, bank bill futures, bond futures.
In 1987, the merger of six stock exchanges led to the formation of the Australian Stock Exchange. Over the years, Australian derivative markets gained more footing in global futures markets, including after-hours trading, an exemption to entry in the US futures market.
In the 1990s, there was further development in capital markets and investments, especially in technology, regulatory, product, clearing and settlement. Australia’s brands and present large companies like Commonwealth Bank of Australia (ASX:CBA), Qantas Airways Limited (ASX:QAN), Woolworths Group (ASX:WOW), AMP Limited (ASX:AMP) entered public markets.
Additional amendments and reforms were enacted in Corporate Laws, interest rate markets were opened retail investors, the settlement cycle was further shortened to T+3 from T+5.
At the dawn of this century, the merger of Austraclear and SFE became a leading business with clearing, settlement and depository service provider. Goods and Services Tax arrived in the country and dotcom bubble burst. In the next few years, SFE completed entering public markets with a listing on ASX, and in 2006, SFE was merged with ASX.
Who are the regulators of ASX?
ASX in Australia operates in a highly complex environment that is regulated mainly by two independent Australian government agencies, that comprises of The Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA). ASIC supervises the real-time trading on Australia's domestic licensed financial markets and supervises ASX's own compliance as a public company with ASX Listing Rules. ASX Compliance forms part of ASX subsidiary company that monitors and enforces ASX-listed companies' compliance according to the ASX operating rules. The Reserve Bank of Australia (RBA) checks the ASX's clearing and settlement facilities for financial system stability. Other regulators are The Australian Prudential Regulatory Authority, Council of Financial Regulators (CFR) (Australia’s main financial regulatory agencies comprising of the RBA (Chair), ASIC, APRA and Treasury) and Treasury. CFR oversees the efficiency and effectiveness of financial regulation, and stabilizes the Australian financial system. CFR also gives advice to the Federal Government for making Australia’s financial regulatory arrangements.
How many sectors are covered on ASX?
The companies listed on ASX are segregated into thirteen sectors, however these are bucketed into two larger categories: resources and industrial.
Minerals explorers and producers, and energy companies fall under the Resources category. While, Industrials covers rest of other streams including information technology, banking and insurance, telecommunications, media and transport companies.
Do you know ASX is listed on ASX!
ASX Limited (ASX:ASX) adopted the brand ASX Group to better reflect its purpose in the Australian capital markets. The company was listed in 1999 and has over two thousand listed entities on its exchange.
It is a constituent of all major indices in Australia and is traded under the symbol ASX on the Australian Stock Exchange. ASX posted a profit of $492 million on revenue of $1.1 billion in 2019.
In 2019, the exchange had 86% market share in equities trading. It has been a sweet spot for small, growing foreign companies, including technology listings.
What are the trading systems on ASX? How ASX is operated?
ASX operates through two trading platforms, which includes ASX Trade, that supports the trading of ASX equity securities, and ASX Trade24 for facilitating derivative securities trading.
All the equity stocks are traded on screen on ASX Trade, which is a NASDAQ OMX ultra-low latency trading platform that is based on NASDAQ OMX's Genium INET system, and are used by many exchanges around the world. The platform is considered to be one of the fastest and most functional multi-asset trading platforms in the world.
Derivatives are traded on ASX Trade24, which is globally distributed with network access points (gateways) and located in Chicago, New York, London, Hong Kong, Singapore, Sydney and Melbourne. The platform supports 24-hour trading, and also simultaneously maintains two active trading days. This allows the products to be open for trading in the new trading day in one time zone while products are still trading under the previous day.
On the other hand, the normal trading on the ASX are on business days (Monday to Friday). ASX does not operate on national public holidays. There is a pre-market session which is from 7:00 AM to 10:00 AM. The market opens alphabetically in single-price auctions, which is phased over the first ten minutes, and then a small random time is built in order to prevent exact prediction of the first trades. The exchange also does a single-price auction which happens between 4:10 PM and 4:11 PM to set the daily closing prices. The investor holds shares in one of two forms, but not in physical forms.
Meanwhile, the traders can short sell the shares on the ASX, but only on designated stocks and with the conditions. For short selling, the brokers must necessarily report all their daily gross short sales to ASX and then the aggregate report of the gross short sales is generated. ASX then publishes this aggregate gross short sales to ASX participants and the general public.
ASX, in collaboration with S&P, provides a range of indices. These indices also include the mainstream benchmark indices of Australia. Some of these are:
- S&P/ASX 20
- S&P/ASX 50
- S&P/ASX 100
- S&P/ASX 200
- S&P/ASX 300
- ALL ORDINARIES
- S&P/ASX MIDCAP 50
- S&P/ASX SMALL ORDINARIES
- S&P/ASX All Australian 50
- S&P/ASX All Australian 200
- S&P/ASX Dividend Opportunities Index
- S&P/ASX Emerging Companies Index
- S&P/ASX All Ordinaries Gold (Sub Industry)
- S&P/ASX Franked Dividend Index
- S&P/ASX All Technology Index
- S&P/ASX 200 Inverse Daily Index
- S&P/ASX 200 VIX Index