When a large number of securities or shares are bought by a company as soon as the market opens, the practice is referred to as dawn raid. Such activity is undertaken usually by a potential acquiring company in a takeover effort.
The strategy of the dawn raid is to take the target by surprise by buying its shares suddenly. Though it involves lesser cost, it is extremely difficult to meet the target of the dawn raid in practice.
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 benchmarks 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
Four Asian Tigers collectively refer to four countries, which were at the heart of growth in Emerging Markets after the Second World War up until the recession in the early 1990s, which also accompanied the fallout of Japan. This quad includes South Korea, Singapore, Hong Kong and Taiwan. Since the 1960s, the quad maintained steady economic growth, which has paid dividends today. Tiger Economy is referred to a rapid economic growth accompanied by improvement in standard of living. Four Asian Tigers grew rapidly and fast and are now developed economies with relatively better educated and productive work force compared to other countries in the region. By the dawn of this century, these countries had completely developed their competitive advantages. Singapore and Hong Kong emerged as international financial centres, and electronic manufacturing boomed in South Korea and Taiwan. The development in the quad was also propelled by emerging technologies and globalisation. Even after the widespread slowdown in the early 1990s, the quad continued to grow after a severe crisis in 1997, which hit the currencies of the majority of Asian countries. But by now, China had emerged as a new star led by similar export and manufacturing policies. Plagued by wars and education problems, the region was labour intensive and largely tilted towards agriculture. After the 1960s, these nations started emerging as highly educated, technologically-advanced with an improving standard of living. Continued momentum in growth also allowed to grow relatively faster than the world had seen before. Often referred to as the Asian Miracle, manufacturing and industrialisation of Asian Tigers also helped the world with growing need of technology and equipment. Export and manufacturing were also at the heart of growth in Japan as well as China. But no one would have predicted Four Asian Tigers will be developed in half-a-century. A free-market approach to development also helped these countries. South Korea South Korea was independent after Japan was defeated in 1945 but was under US military occupation. Korean War also destroyed the Korean Peninsula, and South Korea became independent afterwards. In the initial years of recovery, the country was aided by the US, and economic growth was also dependent on the US economy. Syngman Rhee, President of South Korea, was able to develop educational, infrastructure and communication systems with the help of US aid. After Park Chung-hee came into power in 1962, the country embarked on five-year plans. Now South Korea was targeting economic growth, trade balance, investments, industries as a part of Five-Year Plans. It also increased State intervention in the industries that were crucial for its labour-intensive export-driven ambitions. Industries were also reinvesting their profits in advanced technologies and machinery, and the Government was using tariffs and subsidies to keep the growing industries protected from international pressure. The second five-year plan emphasised on the development of heavy industries, which helped to achieve more exports. In the 1990s, the country pushed itself into high tech industries, and exports were from industries also helped further. Taiwan Taiwan has had an established export business in agricultural goods and textiles. Initially, the country focused on import-substituting industrialisation, which didn’t bear reasonable fruits, and shifted to export-oriented industrialisation on similar lines to South Korea. Industrialisation took over in the country, and traditional primary sector like agriculture and fishery dropped and manufacturing output from industries rose significantly. Taiwan also emphasised on heavy-industries like petrochemical, steel and electronics. The country also privatised state-owned firms and promoted foreign investment and strategic expertise. Leaders also acknowledged the important mid-size firms in economic development. They were also controlling foreign exchange, promoting demand for domestic good by limiting imports by private companies. In the 1970s, the labour-intensive economy of Taiwan was under pressure by economic opening in China. In the wake of growing competition, the country decided to undertake transition to technology and skill-intensive economy. Singapore After the independence from Malaysia, the country was left with small land and no means to supply sufficient food for its people. This also stemmed the belief of having industries to maintain the trade balance. Singapore development is credited to the leadership of Lee Kuan Yew, who was the first Prime Minister for over three decades. He continued serving in the Government in some capacities until 2011. In the initial years, the country moved with light industries to achieve exports, which drove the growth in the early decades of independence. But the emergence of China as an open economy also posed a threat to Singapore in the 1970s. But during the 70s and 80s, Singapore also prioritised heavy industries. The incorporation of Central Provident Fund provided investments in industries, communications, infrastructure, and housing. And, the Government also increased the minimum wage. Singapore found its prosperity as a financial and trading hub, which also require high-skills like high tech industries in South Korea and Taiwan. The country also embraced liberalisation, which also allowed it emerge as a financial and trading hub. Hong Kong Hong Kong had been long known for its ports and as a trading hub in Asia. The Government in Hong Kong emphasised on the development of infrastructure for heavy industries. Given its strong roots as a trading hub and proximity to China, it developed as a financial and trading hub as well as industrial producer. Given China’s takeover of Hong Kong, the picture of the region is not as similar as it was before. Hong Kong had emerged as an Asian Tiger with the most free-market attributes compared to other Tigers. Hong Kong was also benefitted by favourable tax incentives and cheap labour, which attracted a number of industries. Infrastructure push had been at the heart of development in Hong Kong.
A liquidity trap is an economic scenario in which there is contraction in the economy despite very low interest rates. Under a liquidity trap, monetary policy fails to work as people hold onto their savings even in the presence of low interest rates. An expansionary monetary policy is applied to increase the money supply in the economy and to encourage spending in the economy. However, under a liquidity trap the transmission effect of monetary policy does not take place and it is rendered ineffective. The situation of liquidity trap is marked with low interest rates, slow economic growth, and low inflation. What causes a liquidity trap? Once the interest rate becomes too low, the demand for money becomes horizontal. This means that demand for money would not be affected to changes in interest rates beyond this point. This horizontal portion of the demand curve is called the liquidity trap. Individuals believe that since interest rates are too low, they will eventually rise. They believe that buying bonds would mean incurring a loss. A liquidity trap usually occurs during an economic recession when people are afraid to spend money. Even when the government policies favour spending and are aimed at promoting consumption, consumers do not have enough confidence in the economy to utilise this increased liquidity. Therefore, the monetary policy fails to get utilised. Thus, the intended use of monetary policy is not able to get fulfilled due to the loss of confidence of consumers. During slow economic growth, people are uncertain about the timeline of the recession. Thus, they prefer to hold not their cash instead of spending it. How does a liquidity trap affect the economy? A liquidity trap may lead to deflation in the economy which might persist for long. Low inflation is an ideal situation, however; if it persists for long, it may affect the interest rates. As interest rates increase, investment decreases and consumption might fall further. Thus, the economy might contract further. A rise interest rates means people are unable to repay on the loans they have taken. Thus, higher defaults on loans lead to an increase in Non-Performing Assets with banks. This can further intensify the recession and reduce the economic growth. Thus, a trap can set in, from which it becomes progressively more difficult to get out. What are the solutions to liquidity trap? Following solutions can be adopted to get out of a liquidity trap: Increasing Interest Rates: Higher interest rates would encourage people to invest rather than hoard their money. Also, higher long-term rates would encourage banks to lend more as they would get higher returns in the future. Expansionary Fiscal Policy: Keynes argued that when monetary policy is rendered ineffective in a liquidity trap, fiscal policy is a better solution for it. The government must borrow from private sector and utilise it as government spending to give a boost to the economy. Fiscal stimulus can also be provided by reducing taxes. This would increase the confidence of consumers in the government and thus, they themselves would spend more. Reduction in Prices: Economy could receive a boost when prices fall. A reduction in stock prices would encourage investors to buy shares and then wait long enough for prices to increase back. International balancing: It is possible that one country is facing a liquidity trap and the others are not. Thus, countries may coordinate internationally to reduce the effects of a liquidity trap. Why is the fiscal policy stimulus criticised? Fiscal policy has been criticised as it merely shifts the monetary base from private sector to the government sector and does not increase any productivity. The argument comes because an increase in government spending may lead to a decrease in private sector investment. Thus, it would lead to a ‘crowding out’ of private investment. However, Keynes argued that the government borrowing might crowd out the investment under normal circumstances. However, under a liquidity trap, the government borrowing would not crowd out investment but would, in turn, replace savings. Therefore, the private sector lending would help steer the economy. It is important to note that expansionary fiscal policy might fail when the inflation expectations are low among the consumers. However, under expectations of moderate inflation, fiscal policy might be a solution to liquidity trap. What are some real-life examples of liquidity traps? The economy of Japan is in a liquidity trap. The interest rates are near zero, and government borrows money to boost the economy. However, there is not enough stimulus that could be given to the economy. Thus, low interest rates, constant deflation, slow economic growth are all indicators of a liquidity trap. A liquidity trap may also set-in during recessions and economic depressions. The effects of the Great Depression were felt deeply in the Eurozone. Interest rates were maintained at 0%, however, this did not translate into economic stimulus. A similar situation was also observed during the 2008 housing market crisis.
What is Investment Banking? Investment banking is a part of the banking system, catering to the needs of capital markets and market participants. Investment banking firms act as a bridge between the investors and capital seekers, including debt and equity. These firms provide a range of services to clients, including restructuring, capital raising, underwriting, consultancy, security broking, mergers & acquisitions, primary market services, sales and trading etc. Investment banking plays an important in the domestic capital markets as well as international capital markets. Investment banking firms assist market participants in complex financial transactions and provide advisory services. What are the key functions of investment banks? Mergers & Acquisition: Investment bankers assist companies in finding value accretive growth opportunities through M&A. They propose clients with potential targets along with the rationale behind the transactions. Companies looking to grow inorganically often seek investment banks for suitable targets, and investment bankers provide the management with prospective opportunities. M&A is not limited to domestic markets and extend to international markets. Equity Capital Markets: Investment banks provide companies with the necessary advisory and facilitation of new equity issues by companies. They engage with the company and prospective investors to support fresh equity issues. Under this function, investment banks also help privately held companies making public markets debut through an Initial Public Offering. They have an extensive role in an IPO from drafting prospectus to determining an offer price. Debt Capital Markets: Investment bankers also provide debt capital market services to organisations, including Government and companies. Debt continues to remain a favourable source of capital for businesses largely due to the relatively cheaper cost of capital and no dilution of ownership in the entity. Investment banks bridge the investors and capital seekers and price the debt issues of companies and Governments. Debt capital markets are a crucial source of funding of an economy and play an important role in growth. Leveraged Finance: It means the use of debt capital to finance the purchase of investment assets, including acquisitions, takeover and mergers. Since the cost of equity is higher than the cost of debt, corporate raiders have preferred leverage finance to buyout firms. Investment banks help companies to raise capital for leveraged buyouts. The key difference between debt capital markets and leveraged finance is that leveraged finance provides access to high-yield debt capital. Firms can use high-yield capital for leveraged buyouts, mergers & acquisitions, capital expenditure, recapitalisation, refinancing. Restructuring: Investment banks also provide restructuring services to corporates and organisations. Under a restructuring, they attempt to remediate the bottlenecks in a business that are plaguing the performance. Investment banks provide full advisory to improve business performance after an in-depth study of the company. After the study, they may suggest companies to demerge a part of business, sell a part of business, restructure organisational structure etc. Trading & broking: Investments banks also provides trading and broking services for securities, including equity, fixed-income, currencies, commodities, derivatives etc. In addition, they also provide research services for the asset classes covered under their offerings. Some world-renowned investment banks Morgan Stanley Morgan Stanley is a pure-play investment bank based in the USA. Its history dates back to 1935. In the first year of trading, the firm had a market share of 25% in public offerings. The firm is also present in almost all major markets in the world. Macquarie Group Based in Australia, Macquarie Group also have a global footprint with a presence in almost every major market. It provides a range of services, including commodities, equity research, underwriting, IPOs, debt capital markets, investment management. Moelis & Company Moelis & Company is an independent investment bank based in the USA. It provides financial advisory, M&A, recapitalisation, restructuring, capital markets, financial institutions advisory. It is present in 20 locations across the Americas, Australia, the Middle East, Asia and Europe. Credit Suisse Credit Suisse is a Swiss wealth manager and investment bank with a strong presence across major markets in the world. It operates in two divisions, which include Global Markets and Investment Banking & Capital Markets. Deutsche Bank Deutsche Bank is a German global financial services and banking company based in Frankfurt, Germany. It provides corporate banking services, investment banking services, private bank service, and investment management. JP Morgan Chase & Co. JP Morgan Chase is one of the oldest financial institutions in the USA. It has a history of over 200 years. It provides a range of services, including commercial banking, financial advisory, corporate banking, institutional securities, investment management.