Australian Securities Exchange: Explained | TIOmarkets
BY TIO Staff
|June 30, 2024The Australian Securities Exchange (ASX) is one of the world's leading financial market exchanges, offering a wide range of services including listings, trading, clearing, settlement, technical and information services, and post-trade services. It 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.
ASX operates in a world-class, highly efficient and time critical environment. The ASX Group's activities span primary and secondary market services, central counterparty risk transfer, and securities settlement for both the equities and fixed income markets. It functions as a market operator, clearing house, payments system facilitator, and provides educational activities.
History of the Australian Securities Exchange
The Australian Securities Exchange has a rich history that dates back to the mid-1800s. It was initially established as a mutual organization by Australia’s six state-based stock exchanges. The Australian Parliament passed the Australian Securities Exchange Act in 1987, which enabled the formation of the ASX. The exchange was demutualized in 1998 and became a profit-oriented company before it was listed on its own platform in 1998.
Over the years, the ASX has undergone several mergers and acquisitions to strengthen its position in the global financial market. In 2006, it merged with the Sydney Futures Exchange, creating one of the world’s top-10 listed exchange groups. This merger marked a significant step towards the ASX becoming a global leader in financial markets trading.
Key Developments in the ASX History
In 2010, the ASX launched a new trading platform, ASX Trade, which provides a faster, more robust trading system. ASX Trade is a NASDAQ OMX ultra-low latency trading platform that is based on NASDAQ OMX's Genium INET system, which is used by many exchanges around the world.
In 2011, the ASX replaced its CHESS (Clearing House Electronic Subregister System) with a new post-trade solution using distributed ledger technology (DLT). This was a world-first for a major financial market, and it has significantly improved the efficiency of post-trade processes.
Services Provided by the Australian Securities Exchange
The ASX provides a wide range of services to its clients, including listing, trading, clearing, settlement, technical and information services, and post-trade services. It operates markets for equities, derivatives, fixed income and others. It also provides data and other financial information to the investing public.
One of the key services provided by the ASX is its listings service. Companies that want to raise capital by issuing shares or other securities can apply to be listed on the ASX. Once listed, their securities can be bought and sold on the ASX market. The ASX also provides a range of resources to help companies understand the listing process and meet their compliance obligations.
Trading Services
The ASX operates a number of different trading platforms to facilitate the buying and selling of shares, derivatives, and other securities. These platforms include ASX Trade, which is used for trading ASX quoted securities and ASX Trade24 for derivative securities trading.
ASX Trade operates on the NASDAQ OMX's Genium INET system, which is an ultra-low latency trading platform used by many exchanges around the world. This platform is capable of processing order book changes and trades in microseconds, which is a significant advantage in today's fast-paced trading environment.
Clearing and Settlement Services
Clearing and settlement are crucial services provided by the ASX. Clearing is the process of managing the risk that one party to a trade will fail to meet its obligations. The ASX acts as a central counterparty (CCP) for trades conducted on its platforms, which means it guarantees the completion of a trade even if one party defaults.
Settlement is the process of transferring ownership of securities from the seller to the buyer and transferring payment from the buyer to the seller. The ASX provides a settlement service for trades conducted on its platforms and for trades reported to it by third parties.
Regulation of the Australian Securities Exchange
The ASX operates under the regulatory oversight of the Australian Securities and Investments Commission (ASIC). ASIC is the government body that enforces and administers corporations law and consumer protection law for investments and general insurance. It is also responsible 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.
The ASX also has a set of operating rules that participants in the market must comply with. These rules cover a wide range of areas, including listing requirements, trading rules, clearing and settlement, and corporate governance. The ASX monitors compliance with these rules and can take enforcement action if they are breached.
ASX Compliance
ASX Compliance is an ASX subsidiary company that is responsible for monitoring and enforcing ASX-listed companies' compliance with the ASX operating rules. The role of ASX Compliance is to ensure that companies meet their compliance obligations as an ASX-listed entity.
ASX Compliance operates independently from the ASX's commercial activities. It has a separate board and operates under a separate charter. This structure ensures the independence and integrity of the compliance function.
Regulatory Framework
The regulatory framework in which the ASX operates is designed to ensure that the market is fair, transparent, and efficient. The framework is governed by the Corporations Act and includes regulations on listing, trading, clearing and settlement, and disclosure.
Under this framework, the ASX has the power to set and enforce rules, to monitor trading to prevent market manipulation and other unfair practices, and to discipline market participants who breach the rules.
ASX and Global Markets
The ASX is a major global exchange, with a market capitalization of over $2 trillion. It is one of the top 10 largest stock exchanges in the world. The ASX's market capitalization makes it larger than many European exchanges, and it is the largest exchange in the Asia-Pacific region outside of Japan.
The ASX plays a crucial role in the global financial system. It provides a venue for companies to raise capital, for investors to trade shares, and for the price discovery process. The ASX also provides a range of financial products, including equities, derivatives, and fixed income products.
ASX and the Asia-Pacific Region
The ASX is the dominant exchange in the Asia-Pacific region, excluding Japan. It has a larger market capitalization than any other exchange in the region, and it has a wide range of listings from companies based in Australia and other Asia-Pacific countries.
The ASX plays a crucial role in the Asia-Pacific region's financial system. It provides a venue for companies to raise capital, for investors to trade shares, and for the price discovery process. The ASX also provides a range of financial products, including equities, derivatives, and fixed income products.
ASX and the Global Financial System
The ASX plays a crucial role in the global financial system. It provides a venue for companies to raise capital, for investors to trade shares, and for the price discovery process. The ASX also provides a range of financial products, including equities, derivatives, and fixed income products.
As a major global exchange, the ASX is interconnected with other financial markets around the world. It is a member of the World Federation of Exchanges, which is a global trade association for the operators of regulated financial exchanges. The ASX also has relationships with other major global exchanges through mutual listing agreements, cross-listing arrangements, and information sharing agreements.
Conclusion
The Australian Securities Exchange plays a vital role in the Australian economy and the global financial system. It provides a venue for companies to raise capital, for investors to trade shares, and for the price discovery process. The ASX also provides a range of financial products, including equities, derivatives, and fixed income products.
With its rich history, comprehensive suite of services, robust regulatory framework, and significant role in the global financial system, the ASX is a key player in the world of finance and trading. Whether you are a company looking to raise capital, an investor looking to trade shares, or a market participant interested in the financial markets, the ASX has something to offer.
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