A Beginners Guide To The Australian Stock Exchange

Summary: This section looks at the Australian stock exchange, it's history and some of the factors that make the market unique.

The Australian Stock Exchange is the primary stock exchange in Australia which began as separate state-based exchanges established as early as 1871. Today trading is all-electronic and the exchange is also a public company which is listed on the exchange itself.

The biggest stocks traded on the ASX, in terms of their market capitalization, include BHP Billiton, Telstra, and the National Australia Bank.

The mining sector makes up a relatively high proportion of the market, and relatively few manufacturing companies are listed. There are such large deposits of minerals and natural resources "Down Under" that the index is heavily weighted towards commodities. This means that unlike many national stock markets, the change in prices on the commodity markets can have an impact on the entire exchange.

The main index is the S&P ASX 200 which is made up of the top 200 shares in the ASX. The previously significant All Ordinaries index still runs parallel to the S&P ASX 200. Both are commonly quoted together.

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The ASX is a public company, and its own shares are traded on the ASX. However, the corporation's charter restricts maximum individual holdings to a small fraction of the company.

While the ASX regulates other listed companies listed on the ASX, it cannot regulate itself, and is regulated by the Australian Securities and Investments Commission (ASIC).

At the end of 2004, 1515 stocks were listed on the Australian Stock Exchange with a total market capitalisation of $A991bn. However, by 2010 there were over 2,000 companies listed and the total value of the market had risen to around A$1.5 trillion. This means that it has grown from the 8th to the 6th largest world equity market, comprising around 2.2% of the MSCI world index.

As with all other capital markets, the ASX is not just a listing environment for companies and their equity, though this is how the public view a stock market. The exchange also hosts a well developed corporate debt market and a 'Foreign Exempt Listing' which is designed for large international companies that wish to be publicly listed in Australia but are already listed in another country.

In the modern global economy, every developed nation needs other more complex financial market solutions and ASX provides these as well. ASX Clear and ASX Clear (Futures) act as a clearing house for transactions and at the time of writing is developing a system for margining, to further help the liquidity and stability of the Australian stock exchange.

As if all that was not enough, the ASX has thrust itself into the global equity market with services designed to assist high frequency trading technologies used by large investment banks and algorithmic trading hedge funds. In good times, this is usually a way for a market to have far more liquidity but it can also add to the overall volatility of the stock market.

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