The Australian Stock Exchange (ASX) is a relatively new entity, created in 1987. Before its creation, Australian stocks could be traded on six different exchanges! Each major city had its own stock exchange. Since the first Australian exchange in Melbourne (founded 1861), Australian stocks have been traded by three methods. The first was a primitive verbal auction. One person would call out names of stocks for bidding. With the mining boom in 1969, trading volume increased dramatically rendering this system inapplicable. Australians replaced the call out system with the chalk system. “Chalkies” incessantly scribbled buy and sell orders on chalkboards. With the formation of the Australian Stock Exchange came to decision to use an all-digital trading platform.
The platform is known as SEATS or Stock Exchange Automated Trading System. Following its implementation the trading floors were closed. On SEATS, brokerage fees are extremely low. Fees ranging from .12 AUD to .18 AUD are commonplace. Since 1996 ASX has been a publicly listed company. Prior to its demutualization it was owned by stockbrokers.
ASX is the 8th largest exchange. It houses just over 2% of world wide stock capital listing just under 2000 stocks. About 99,300 trades are placed daily on the exchange. The biggest stock on the exchange is BHP Billiton with a total market capitalization of 6.6% (as of 2004). This mining giant (the biggest in the world), formed from the merge of Australian BHP with British Billiton, is a leading producer in iron, coal, diamonds, petroleum and bauxite.
On the exchange, trading hours are a short 10 AM to 4 PM Sydney time. The ASX does not open all stocks simultaneously. To prevent traders from timing the opening transactions, sectors open randomly during the first ten minutes.
The only major Australian bank participating on the exchange is Macquarie Bank. The other banks are major global players such as Goldman Sachs, Morgan Stanley and Deutsche Bank. As a side note, in February 2006, Macquarie placed a bid for the London Stock Exchange but was rebuffed. Foreign ownership accounts for a vast 40% of Australia’s markets with Institutional ownership at 30% and the retail investors accounting for 30% as well.
Options were first added to the ASX in 1976, followed by warrants in 1990, fixed income securities in 1993 and futures in 1994. From the beginning, fixed income securities were traded electronically. The current electronic system is the Clearing House Electronic Subregister System, abreviated as CHESS. Futures were origionally traded on the Sidney Futurs Exchange – an entity separate from the ASX and the largest derivitives exchange in Australia. A merger was anounced between SFE and ASX this year.
Indexes tracking the Australian Stock Exchange are the S&P ASX 200 Index and the S & P ASX 50 Index. These indexes track the largest 200 and 50 stocks on the exchange respectively. Stocks on the ASX 200 account for 89% of Australian market capitalization. The most comprehensive index is the famous All Ordinaries Index. It’s aim is the encompass the whole Australian market. The All Ordinaries Index tracks the 500 biggest companies.