The Australian Stock Exchange (ASX) is a publicly listed company formed in 1987 through an amalgamation of six independent stock exchanges located in the capital cities of each state.
The ASX serves a dual role in the efficient functioning of the Australian stock market, acting as a facilitator for the trading of shares, and regulator, responsible for ensuring that all market participants, including brokers, market makers, financial institutions and listed companies comply with applicable business and listing rules.
ASX as Facilitator
In its role as facilitator, the ASX provides the technological platform which enables share trading to take place. In Australia, this system is known as the Stock Exchange Automated Trading System or SEATS. Simply put, the SEATS system can be thought of as a public auction, whereby market participants can place their orders to buy and sell shares by specifying a desired quantity and price. If you imagine a market place with thousands of such people continuously entering their "bids " (if they are looking to buy) and "offers" (if they are looking to sell), you will have a rough idea of the size and scale of the SEATS system.
Orders placed within the SEATS system are prioritized based on price-time priority. This is best illustrated with an example: If we have two investors looking to buy or sell a particular share, and each enter the desired quantity and price they are willing to pay or offer, the order with the 'best' price will have priority. The 'best' price is defined as the higher price, if the person is looking to buy, or the lower price if they are looking to sell.
The next logical question then is: What if two investors are looking to buy or sell shares at the same price? In this case, priority is based on a 'first come first serve' basis, whereby the order received in the market first will have priority.
ASX as Regulator
In its role as regulator, the ASX continually implements, monitors and enforces the rules and regulations which all publicly listed companies must adhere to, including but not limited to:
- the timely and continuous disclosure of financial reports,
- disclosure of all company related announcements,
- substantial changes in shareholding, and
- trading by company insiders.
The ASX also monitors and regulates the activities of other market participants such as brokers, financial institutions and investors, to prevent potential market manipulation, and ensuring the efficient functioning and integrity of the market place.
ASX on the world stage
In a global context, the ASX is but one of many stock exchanges operating around the world. Other major exchanges include the New York Stock Exchange, the London Stock Exchange, Euro-next, etc. The ASX is the largest exchange in the Asia Pacific region, however on a global scale, it accounts for less than two percent of total worldwide capitalization.
Get an overview of the Australian Stock Exchange (ASX) - the centre for share trading in Australia. It provides both a platform for trading and regulates activities. Want to get a better understanding of what it is and how it works? Find out here.