Stock Market in Australia

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Stock Market in Australia

  1. 1. BY- Anil Vishnoi, 769
  2. 2. AN INTRODUCTION to STOCK MARKET  A stock market or equity market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. Market participants include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares.  The size of the world stock market was estimated at about $36.6 trillion at the beginning of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy.
  3. 3. AUSTRALIA- ECONOMIC OVERVIEW  The economy of Australia is one of the largest capitalist economies in the world with a GDP of US$1.57 trillion. With a relatively high-growth and low-inflation economy supported by robust political and economic institutions, and an internationally competitive business sector, Australia now ranks as the 12th largest economy in the world (measured by GDP), and the 4th largest in the Asia Pacific region.  This firm international standing is reflected in the fact that Australia’s three largest trading partners – China, Japan and the United States - are also the three largest economies in the world; and its two largest investment partners - the US and UK – are home to the world’s largest capital markets. The Australian economy is dominated by its service sector, comprising 68% of GDP.
  4. 4. Australia- Economic Overview- continued……  Spurred by its healthy political and economic position, Australia has become an attractive investment destination for global investors as well as home to many major multinational financial services providers. With a diverse investor group comprised of 40% foreign investors, 40% domestic institutional investors and 20% retail investors, the Australian equity market is well placed in the global economy.  The Australian Securities Exchange in Sydney is the largest stock exchange in Australia and in the South Pacific and ranks 9th in the world in terms of market capitalisation.  There are basically two main stock exchanges in Australia:-  Australian Securities Exchange (ASX)  National Stock Exchange of Australia (NSX)
  5. 5. Australian Securities Exchange (ASX)  INTRODUCTION  The Australian Securities Exchange (ASX) is Australia's primary securities exchange. It was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. Today, ASX has an average daily turnover of $4.685 billion and a market capitalisation of around A$1.4 trillion, making it one of the world's top-10 listed exchange groups, comparable to the New York Stock Exchange, London Stock Exchange and Deutsche Boerse.  HISTORY The ASX Group's origins as a national exchange go back to 1987. The Australian Stock Exchange Limited was formed in 1987 after the Australian Parliament drafted legislation that enabled the amalgamation of six independent state- based stock exchanges. Each of those exchanges brought with it a history of share trading dating back to the 19th century.  In 2006 The Australian Stock Exchange merged with the Sydney Futures Exchange and originally operated under the name Australian Securities Exchange.  Later, however, ASX launched a new group structure to better position it in the contemporary financial market environment. From 1 August 2010 the Australian Securities Exchange has been known as the ASX Group.
  6. 6. Australian Securities Exchange (ASX)- Continued…….  ASX Group is a market operator, clearing house and payments system facilitator. It also oversees compliance with its operating rules, promotes standards of corporate governance among Australia's listed companies and helps to educate retail investors.  REGULATION  The Australian Securities and Investments Commission (ASIC) has responsibility for the supervision of real-time trading on Australia's domestic licensed financial markets and the supervision of the conduct by participants (including the relationship between participants and their clients) on those markets. ASIC also supervises ASX's own compliance as a public company with ASX Listing Rules.  ASX Compliance is an ASX subsidiary company that is responsible for monitoring and enforcing ASX-listed companies' compliance with the ASX operating rules.  The Reserve Bank of Australia (RBA) has oversight of the ASX's clearing and settlement facilities for financial system stability.
  7. 7. Australian Securities Exchange (ASX)- Continued…….  PRODUCTS  Products and services available for trading on ASX include shares, futures, exchange traded options, warrants, contracts for difference, exchange-traded funds, real estate investment trusts, listed investment companies and interest rate securities.  The biggest stocks traded on the ASX, in terms of market capitalisation, include BHP Billiton, Commonwealth Bank of Australia, Westpac, Telstra, Rio Tinto, National Australia Bank andAustralia and New Zealand Banking Group.  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
  8. 8. Australian Securities Exchange (ASX)- Continued…….  TRADING SYSTEMS  ASX Group has two trading platforms - ASX Trade,[ which facilitates the trading of ASX equity securities and ASX Trade24 for derivative securities trading.  All ASX equity securities are traded on screen on ASX Trade. ASX Trade is a NASDAQ OMX ultra-low latency trading platform based on NASDAQ OMX's Genium INET system, which is used by many exchanges around the world. It is one of the fastest and most functional multi-asset trading platforms in the world, delivering latency down to ~250 microseconds.  ASX Trade24 is ASX global trading platform for derivatives. It is globally distributed with network access points (gateways) located in Chicago, New York, London, Hong Kong, Singapore, Sydney and Melbourne. It also allows for true 24-hour trading, and simultaneously maintains two active trading days which enables products to be opened for trading in the new trading day in one time zone while products are still trading under the previous day.
  9. 9. Australian Securities Exchange (ASX)- Continued…….  SETTLEMENT  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  Short selling of shares is permitted on the ASX, but only among designated stocks and with certain conditions:  ASX Trading Participants (brokers) must report all daily gross short sales to ASX. The report will aggregate the gross short sales as reported by each Trading participant at an individual stock level.  ASX publishes aggregate gross short sales to ASX participants and the general public.  Many brokers do not offer short selling to small private investors. LEPOs 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.
  10. 10. Australian Securities Exchange (ASX)- Continued…….  OPTIONS  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.  MARKET INDICES  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.
  11. 11. National Stock Exchange of Australia- NSX  National Stock Exchange of Australia (NSX) is a stock exchange based in Newcastle, Australia. It is owned and operated by NSX Limited, which is listed on the Australian Securities Exchange on 13 January 2005. It also operates SIM Venture Securities Exchange. On 20 December 2006 the Newcastle Stock Exchange formally sought approval and was granted a change of name by the Minister to National Stock Exchange of Australia and still trades by the acronym of "NSX".  The NSX lists various companies within Australia and overseas that meet its listing rule requirements. Trading is all-electronic based on time and price priority using NETS (the NSX Electronic Trading System) which is based on the NASDAQ OMX X-stream trading platform. Settlement of securities is electronic and on a T+3 basis utilising the ASTC CHESS system.  HISTORY  The NSX was founded in 1937 and in the past had listed as many as 300 local and regional companies. Some grew to become significant businesses, such as Brambles Limited. It was reactivated in its present form in 2000 with about 70 listed companies.  In 2011, National Stock Exchange of Australia featured on 2011 Mines and Money Australia conference on mining and investments
  12. 12. NSX-Continued……..  TRADING SYSTEMS  The National Stock Exchange of Australia has been operating as an Australian Market Licencee since February 2000. In April 2005 NSX of Australia acquired the Bendigo Stock Exchange (currently known as the SIM Venture Securities Exchange or SIMVSE). Both markets operate on international standard electronic trading systems and settlement is available electronically via ASX Clear CHESS system or manually for non-CHESS enrolled securities.
  13. 13. NSX-Continued……  TRADING SCHEDULE  National Stock Exchange of Australia has a start-of-day enquiry session from 2:30am to 3:00am, a pre-open sesstion from 3:00am to 10:00am, a normal trading session from 10:00am to 4:00pm, and a post-market session (end-of-day enquiry) from 4:00pm to 11:00pm (all times in AEST).  Current holidays: Good Friday, Easter Monday, Anzac day (25 April), Queen's birthday (June) and Christmas Day (25 December) and New Year's Day (1 January).
  14. 14. NSX- Continued……..  MARKET INDICES  Below is the list of all NSX indices:  NSX All Equities Index  NSX All Agriculture Index  NSX All Finance Index  NSX All Investment Index  NSX All Property Index  NSX All Resources Index  NSX All Technology Index  SIMVSE All Equities Index 
  15. 15. NSX- Continued………….  SIMVSE Joint Venture with FEX  FEX Group owns 50% of the SIM Venture Securities Exchange (SIM VSE) in a joint venture with the National Stock Exchange of Australia, which was launched in July 2010. SIM VSE operates a securities market specialising in driving investment in the clean technology, renewable energy, biological science and related technology and service industries. SIM VSE has trading capability in cash equities executed using the NasdaqOMX X-Stream trading platform. Orders are entered by market participants via the electronic market interface. The trading platform compares bid and offers entered into the system and automatically executes trades in strict time/price priority. Trades are settled through CHESS.
  16. 16. Australian Stock Market Report Thursday 10, October 2013  SUMMARY CLOSE MOVEMENT PERCENTAGE CHANGE All Ordinaries 5151.60 3.50 0.10 All Industrials 5153.00 3.60 0.10 50 Leaders 5317.80 4.00 0.10
  17. 17. Australian stock market to improve in 2014: UBS  UBS anticipates the Australian stockmarket will improve in 2014 as the lower Australian dollar and interest rates begin to have a positive impact and business confidence lifts post the federal election.  The investment bank thinks the Australian market currently offers good value based on price-earnings multiples and forecasts earnings per share (EPS) growth in the next financial year to be between 6-7%, against the market estimate of 10%.  The bank listed four reasons as to why the Australian market has dropped by over 10% since May: it was looking expensive, it was too heavily overweight yield compared to other markets, the pullback from foreign investors amid the falling dollar and increased fears about the Australian economy.
  18. 18.  However, the effects of interest rate reductions and lower $A are beginning to kick in, which will boost corporate earnings in the medium term.  The investment bank estimates the drop in the $A to 93 cents from $1.04 will boost Australian companies' aggregate market earnings by 4% in 2013-14, and by 2% excluding the resources sector.
  19. 19.  "While the economy and earnings cycle will likely continue to work through the current soft patch, the foundations are likely being laid for a better CY14 rather than a slide into outright contraction," UBS said.  But UBS said the key risk to this is the domestic economy outside of negative shocks from China, with increased talks about a recession dampening sentiment.  "Sentiment towards the economy has clearly soured in recent months as the capital spending cycle has begun to weakn while the non-mining economy remains subdued," the bank said.

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