Australian Stock Exchange - Essay Example

?Australian Stock Exchange Introduction Company requires funds either when it is founded or when it is expanding. One of the ways of acquiring funds by an already existing company is through investments. The investments by investors are made in the form of stocks. According to Furgang (2010), stock is a partial ownership of the company also known as share. The stocks need to be traded to investors in order for the company to obtain the funds it requires in its business undertakings. Moreover, the initial investors need to trade their stocks to other interested investors. This is done either to remove risks or to obtain a profit. According to Becket (2012), stock exchange is a public place where a company can sell its shares to investors or where an investor can buy or sell shares to another investor. Australian Stock Exchange is one of such places used for trading stocks. This paper explains an evaluation of this market and discusses the importance of the market to the Australian economy. The Australian Stock Exchange manages all the activities related to trading of shares in Australia. The activities concern both primary and secondary services required by companies and investors in the trading of shares. This includes capital information and hedging, trading and price discovery, risk transfer, and securities settlement (ASX, 2012). This stock exchange has been ranked among the largest in the world in terms of market capitalization. According to Downers and Masci (2003), the Australian Stock Exchange was in the past converted from a mutual organization to a company. Due to this, it expanded its regulations and incorporated public interests in its operations. Moreover, it became more accountable to the members of the public. This is because the public is its main owner. One of the major responsibilities of this stock exchange is to distribute necessary information to companies, current shareholders, and potential shareholders. According to Webb and Yu (2004), some of the most crucial information that this company distributes is information about change in shareholding, notices of intended takeovers, and statements of directors’ interests. This information can guide investors in making decisions of whether to trade their stocks or to continue holding them. Moreover, it can guide companies in their decisions to introduce new shares to the markets when seeking funds for expanding. Furthermore, they can guide the company in determining appropriate prices for the shares it intends to introduce in the stock market. Most of this information is conveyed in the form of news articles. However, the Australian Stock Exchange also uses its website to convey information to the public. The information that it conveys through its website ranges from share prices to information on investment education and trading games (Pollard, 2011). This information could also be very crucial to investors, potential investors, and listed companies. The stock exchange coordinates with other stock exchanges of the world – the most important of them are the stock exchanges of the Unites States, United Kingdom, China, Japan, and New Zealand (ASX, 2012). This is because these countries are the Australia’s major trading partners. It organizes the Australian equities to be given exemptions on other foreign equity markets and gives exemptions to foreign equities traded in the Australian equity market. According to Campbell (2008), this stock exchange has offered exemptions to New Zealand equities offered to Australian public similar to the ones offered for Australian equities offered in New Zealand. This promotes the flow of capital in and out of this country, which positively affects economic activities in the country. Clear comparison can be drawn between the Australian Stock Exchange and other stock exchanges of the world. This stock exchange is among the most developed ones internationally. As a result, it can be closely compared, for example, with the New York Stock Exchange and Tokyo Stock Exchange. Moreover, it can be compared with emerging stock markets like Korean Stock Exchange and the Taiwan Stock Exchange. According to Klein, Dalko, and Wang (2012), stock exchanges are affected by price limits, specific trading halts, and cross-market circuit breakers regardless of whether they are developed or emerging. This stock exchange is affected by these three factors, too. In some cases, due to this, investors have lost their investments. An example of such cases is the one that happened to investors of Red River Limited when the company share prices went from 9 cent to $ 1.85 within a very short period (Ryle 2010). This caused the investors of this company to incur losses, and this affected the trading of these stocks in the Australian Stock Exchange. According to Brown and Bentley (2002), stocks in a stock market go up and down based on the changes in market’s perception of the stock and the confidence of investors. Australian Stock Exchange is not different from other markets in these aspects. In this market, the prices of the stocks have been changing very frequently because of the changes in these two factors. However, there are stocks that have maintained high prices for a long period. It is always the aim of every stock exchange to increase its market capitalization. This raises competition among the largest stock exchanges of the world such as NYSE, NASDAQ, LSE, and other international stock exchanges (Brigham and Ehrhardt, 2010). Australian Stock Exchange is an international entity. Due to this, it faces market capitalization competition, too. Australian Stock Exchange also differs from other international stock exchanges in various ways. Some of these changes are what makes it to be competitive in the world. According to Papadopoulos (2011), stock exchanges differ in terms of structure, participants, efficiency, and regulatory framework. This stock exchange is structured in a way that enables trading of large equities. Its structure is more effective compared to the structures of the stock exchanges of the developing countries. This is because it incorporates international trading of equities. Moreover, majority of the participants in this market are international companies and corporations. This makes it a place where any kind of stock could be sold or bought. However, it has less international participants compared to other international stock exchanges like the NYSE and LSE. According to Bragg (2010), fee charged to listed companies and investors for trading shares is different in different stock exchanges. This is because of the differences in the trading environments, regulations, and risks available in each of the stock markets. The fees charged to companies listed in Australian Stock Exchanges are different from those charged to other international stock exchanges. It has been an objective of this stock exchange to make this fee as low as possible to increase its competitiveness. The fee charged to investors for trading shares in this market is also very different compared to the fee charged in other stock exchanges. This has attracted investors into this market, which has promoted market capitalization. However, it still ranks below several international stock markets like the Tokyo Stock Exchange and New York Stock Exchange. Therefore, there is still a very great need for improvement both in services it provides and in the fees charged on capital transactions. According to Boskovic, Cerruti, and Noel (2010), stock exchanges are regulated markets governed by several laws and regulations. These laws and regulations depend on the country or state in which the stock exchange operates. Although Australian Stock Exchange is an international stock exchange, it operates in the country of Australia. As a result, it is governed by laws and regulations that differ from laws and regulations governing stock exchanges operating in other countries. These laws could favor market capitalization in a market. They could also hinder market capitalizations in the stock exchange market. The laws and regulations designed for this market have been favoring the undertaking of stocks trade. It is due to this that this stock market has experienced tremendous growth over the past years. Stock exchanges could be very crucial to a nation and companies listed in the market. This is because they provide capital and enhance capital flow. Maheshwari (1997) identifies capital as a very important sinew of business undertaking. Capital generation and flow affects both the companies operating in a country and the overall economy of the country. Australian Stock Exchange is very significant for the economy of the country of Australia. Its importance could be identified if one takes into consideration the ways in which it has influenced economic activities in that country and the influence it has on the lives of the Australian people. According to Fleming (2004), Australian Stock Exchange has facilitated the flow of capital within Australia and between Australia and its other trade partners. This has eased the process of generating capital for major economic activities undertaken in the economy. Moreover, it has reduced the costs incurred by companies in generating capital for their expansion ventures. As a result, expansion of business in the Australian economy has become much easier. Business expansions results in the increase of economic activities, thus leading to economic growth. Growth that has been experienced in the Australian economy is because of the success of its stock exchanges. Therefore, the Australian Stock Exchange has been very significant for that country. The stock exchange has also played a significant role in improving business operations in Australia. According to Dagwell, Wines, and Lambert (2007), it has influenced the development of accounting standards both as a campaigner and as a sponsor. It has done this through insisting that companies should set certain accounting standards for them to be listed. One should compare the difference between the accounting standards of the listed companies in Australia and the accounting standards of unlisted companies. Good accounting standards improve the management of businesses. Improvement in management improves the operations of companies, thus enabling growth in its activities. This could result in an overall growth in the country’s economy. The stock exchange is also very important to the companies operating in this country as well as those aiming to operate in this country’s markets. One of its significance to the listed companies is enabling them to acquire capital. According to Abraham et al. (2008), it also provides these businesses with an opportunity of enhancing their business activities through the use of external growth. This results in improved management as well as introduction of new ideas. As a result, the companies increase their chances of raising revenues when they become listed in the Australian Stock Exchange. However, the Australian Stock Exchange has had some setbacks. Each of the six capital cities in Australia has a stock exchange (Coffee, Lowenstein and Rose-Ackerman, 1988). These stock exchanges have different companies listed on them. This acts as a splitting factor to market capitalization in this country, thus making the generation of large capitals not as effective as required. Moreover, the Australian Stock Exchanges has been reluctant in suspending trading in shares that soar to unprecedented heights (Sharp, 1971). This has caused it to be dominated by foreign companies and foreign investors. As a result, the foreigners have indirectly gained the control of the country’s economy. Conclusion Australian Stock Exchange is one of the largest stock exchanges in the world. It contains international investors as well as international companies, which makes it an international stock exchange. This stock exchange is very similar to international stock exchanges of other countries; however, it has several distinguishing and unique characteristics, too. The differences are the reasons for its competitive advantage in the market capitalization trade. The market is very important to the nation as well as to the listed companies. This is because it enables the listed companies to obtain capital and promote economic growth. However, it has limitations due to being fragmented into several small stock exchanges located in various capital cities. Reference list Abraham, A. et al., 2008. Accounting for managers. London: Cengage Learning EMEA. ASX, 2012. Guide to becoming an ASX participant [online]. Available at: https://www.asxonline.com/intradoc-cgi/groups/public/documents/participantapplicationkitasx/asx_022589.pdf [Accessed 7 September 1212]. Becket, M., 2012. How the stock market works: A beginner’s guide to investment. London: Kogan Page Publishers. 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Crow Nest: Griffin Press. Sharp, K., 1971. The house of mammon: The stock exchange at work. Sidney: Hicks Smith & Sons Ltd. Webb, G.I. and Yu, X.H., 2004. Al 2004: Advances in artificial intelligence. Berlin: Springer Publishing Company. Read More