Study on Australian Securities Exchange

1.1 Brief Introduction of ASX1.2 Function of ASX1.3 History of ASX1.4 Timeline of significant events

Chapter 1 Introduction of ASX

1.1 Brief Introduction of ASX

The major market index is the S&P/ASX 200 which is made up of the top 200 shares in the ASX and it runs parallel to the All Ordinaries index.

The current Managing Director and CEO, Mr Elmer Funke Kupper, was appointed in October 2011.

1.1 Brief Introduction of ASX (continued)

1.2 Function of ASX

Subsidiaries Services handled Components

Australian Securities Exchange

Primary, secondary and derivative market services

ASX (formerly Australian Stock Exchange) and ASX 24

(formerly Sydney Futures Exchange)

ASX Clearing Corporation ASX’s clearing services ASX Clear (formerly the Australian Clearing House)

and ASX Clear (Futures) (formerly SFE Clearing

Corporation)ASX Settlement Corporation Settlement services ASX Settlement (formerly

ASX Settlement and Transfer Corporation) and Austraclear

ASX Compliance Ongoing monitoring and enforcement of compliance with the ASX operating rules

Replaces ASX Markets Supervision

TABLE 1.1 Services and components of subsidiaries

1.3 History of ASX

The ASX Group's origins as a national exchange date back to 1987 when the Australian Stock Exchange Limited was founded through incorporation under legislation of the Australian Parliament that enabled the combination of six independent state-based stock exchanges.

In 2006 The Australian Stock Exchange merged with SFE Corporation, holding company for the Sydney Futures Exchange.

Later ASX launched a new group structure and from 1 August 2010 the Australian Securities Exchange has been identified as the ASX Group.

1.4 Timeline of Significant Events

1987 The Australian Stock Exchange Limited (ASX) was

established on 1 April 1987. Also in 1987, the all-electronic SEATS trading system was launched. It started on just a limited range of stocks; progressively all stocks were moved to it and the trading floors were closed in 1990.

1993 Fixed-interest securities were introduced. That same

year the FAST system of accelerated settlement was established, and the following year FAST was replaced by the CHESS system .

1998 The ASX became listed in 1998 which was the

first exchange in the world to have its shares quoted on its own market.

1.4 Timeline of Significant Events (continued)

2002 Following the lead of the ASX four years earlier, SFE Corporation

demutualised in 2000 and listed on ASX in 2002.  2006 The ASX announced a merger with the Sydney Futures Exchange, the

primary derivatives exchange in Australia, thus the combined entity became the 9th largest listed exchange group globally.

  2010 ASX Market Supervision changed its name to ASX Compliance to

reflect the change in the regulatory environment. The Australian Securities Exchange launched a new brand structure on 1 August 2010, which means that it became known as ASX Group.

At The Same Year, ASX was (25 October 2010) in merger talks with Singapore Exchange (SGX). The merger was blocked by the Australian Federal Treasurer on 8 April 2011 as it finds the proposed merger to not be in the best interests of Australia.

Chapter 2 Size of ASX

2.1 Number of securities listed on ASX

2.2 Total market capitalization of securities listed on ASX

2.3 Analysis of size of ASX

2.1 Number of Securities Listed on ASX

Source: ASX Annual Report 2010

Year Number of securities listed

Annual growth rate of

number of securities

FY06 1,930

FY07 2,090 8.29%

FY08 2,226 6.51%

FY09 2,198 -1.26%

FY10 2,192 -0.27%

TABLE 2.1 Number of securities listed on ASX

2.2 Total Market Capitalization of Securities Listed on ASX

Year

Market capitalization of

securities listed on the

exchange（ $bn）

Annual growth rate ofmarket

capitalization

FY06 1,207

FY07 1,598 32.39%

FY08 1,415 -11.45%

FY09 1,098 -22.40%

FY10 1,254 14.21%Source: ASX Annual Report 2010

TABLE 2.2 Total market capitalization of securities listed on ASX

2.3 Analysis of Size of ASX

FY06 FY07 FY08 FY09 FY100

500

1,000

1,500

2,000

2,500

1,930

2,090

2,226 2,198 2,192

1,207

1,598

1,415

1,098

1,254Number of securities listed on the exchange Market capitalization of securities listed ($bn)

FIGURE 2.1 Changes of ASX size

2.3 Analysis of Size of ASX (continued)

FY07 FY08 FY09 FY10

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

8.29%6.51%

-1.26% -0.27%

32.39%

-11.45%

-22.40%

14.21%

annual growth rate of number of secu-ritiesannual growth rate of market capital-ization

FIGURE 2.1 Changes of ASX size

2.3 Analysis of Size of ASX (continued)

According to the above graphs, it is clear that size of ASX became more volatile from FY08.

This can be explained by the profound economic impact of the international financial crisis.

Global equity market retreated significantly in the second half of FY08 because of the tightening in the supply of credit , Australia was no exception.

2.3 Analysis of Size of ASX (continued)

FIGURE 2.3 Key financial ratios Source: ASX Annual Report 2010

2.3 Analysis of Size of ASX (continued)

As it happened in the second half of the year, EPS and Dividends per share had not been affected significantly while they dropped dramatically in FY09.

However, Share price began to decline as early as FY08. The stock market price is a leading indicator.

Overall, changes of size of ASX was consistent with that of financial ratios.

2.3 Analysis of Size of ASX (continued)

Faced with a more difficult economic environment, ASX adopt a range of measures such as well-trained supervision personnel, efficient and effective processes, and fit-for-purpose technology.

These helped ASX through the rough times. As we can see, the size of the ASX recovered gradually in the year of 2010. Accordingly, EPS and Dividends per share climbed slightly in FY10.

3.1 Criteria for Listing

Chapter 3 Listing Process

To ensure the quality of the market, ASX sets out a list of specific requirements which an organization has to meet to list its shares on ASX.

structure, size and number of shareholders

ASX Listing Rules 1.1, condition 7 (a)

ASX Listing Rules 1.1, condition 7 (b)

Minimum 500 investors @ A$2,000 or

Minimum 400 investors @ A$2,000 and 25% held by unrelated parties

Number of shareholders

Company size Profit Test in Rule 1.2 Assets Test in Rule 1.3.1

A$1 million net profit over past 3 years + A$400,000 net profit over last 12 months

A$2 million Net Tangible Assets or A$ 10 million market capitalization

Source: IPO: the road to growth and opportunity

Source: IPO: the road to growth and opportunity

3.2 Issues Need to be Concerned

Issue #1: the disclosure requirements and ongoing reporting.higher degree of transparency ‘business secret’ to the publicuneasy with the greater disclosure of salariestime consuming

Issue #2: the sensitivity to the market condition and possibility of out of control.companies’ share prices are easily influenced certain corporate transactions need outside approvals. potential of being took over

Issue #3: the cost of listing, maintaining listing and raising additional capitalunderwriting or brokerage fees, accounting, legal and other professional fees, prospectus costsASX listing fees

ASX suggests: before going public, the company should have some issues fully considered

The time management for listing is important - three months to two years (typical six months)

listing process - eight steps

Step 1 - appointing advisorschoose quality professional advisers - able to assist the company with a wide range of issues.starting with the existing accountants, advisers and solicitors

1. have the skills, experience and expertise dealing with the IPO

2. familiar with the company’s current business. seek outside advisors’ help - prepared key information of the company’s current business and financial position who can be sought advice from: corporate advisers, stockbrokers and investment banks, underwriters, lawyers, accountants, other experts etc.

3.3 Major Steps of Listing

Step 3 - preparation of prospectus and due diligence1. Prospectus - required for companies offering shares company background, board and management and financial status etc. form a valuable assessment of the offer 2. The due diligence process Corporations Act (liability provisions) - making false or misleading statements in, or material omissions - applied to key participants who preparing the prospectus due diligence committee - verify the information disclosed in the prospectus very carefully

Step 2 - talk to ASXpreliminary stageASX and companies - find out the potential of the companies’ business ASX - provides general guidance on the IPO process and advises more advanced stageASX - clarifies issues from regulatory, structural and constitutional

aspects - answer queries regarding the ASX Listing Rules and general business issues

3.3 Major Steps of Listing (continued)

Step 5 - applying to listwithin seven days of lodging prospectus with ASIC - submit its listing application with relevant admission fees to ASX - ASX reviews the application and prospectus

Step 6 - the IPO period after the exposure period - prospectus is printed - offer is officially launchedconduct roadshows to market the offer

Step 4 - lodging the prospectusprospectus lodged with Australian Securities & Investments commission

(ASIC) within 7 days after lodgment - cannot accept subscriptionsperiod extends to 14 days - amendments are required order issued to stop the offer at the end of the period - cannot meet the criteria of the Corporations Act - may need to provide a supplementary prospectus

3.3 Major Steps of Listing (continued)

Step 7 - admission ASX Listing Advisers - additional information seeking to assess the applicationadmitted to the ASX Official Listtrading commences once certain conditions have been met

Step 8 - commencing trading start writing the outcome once listing application has been

consideredoutcome contains: - conditions to be met before admitted to the official list e.g. raising the minimum subscription amount - conditions to be fulfilled before quotation can commence e.g. dispatch of holding statements. shares quoted on ASX’s trading system and ASX TradeMatch.

3.3 Major Steps of Listing (continued)

ASX listing almost same admission requirements which apply to an Australian

entityregardless whether listed on another stock exchange

ASX Foreign Exempt listingThe foreign companies already listed on another stock exchange outstanding profit history notable net tangible assets

many of ASX’s ongoing listing rules do not apply to those companies- eliminate dual regulation and compliance burden

Overseas exchange Company size Number of shareholders

The entity’s overseas home exchange must be a member of the World Federation of Stock Exchanges (WFE)

A$200 million profit before tax for each of the last 3 years or At least A$2,000 million net tangible assets

At least 1,000 holders each having a parcel of securities with a value of at least A$500

Source: International listing on ASX: the road to growth and opportunity

3.4 International Listings on ASX

Chapter 4 Trading System

The current trading system, which takes the latency down to 300 microseconds, is based on NASDAQ OMX’s Genium INET system.

ASX is previously the South East Asia region’s leading market.

Trading Platform

TradeMatch

PureMatch

VolumeMatch

equity and related equity

derivative products

interest rate, equity index

and commodity derivatives

ASX Trade 24

24 hours

ASX Trade10am-

4pm

Trading Process

Price-time Priority

CLOB

BROKER

INVESTOR

7am-10am Pre-open

Brokers enter orders into ASX Trade in preparation for the market opening. Investors may enter orders on-line. The orders are queued according to price-time priority and will not trade until the market opens.

10am* Open

ASX Trade calculates opening prices during this phase.

10am-4pm Normal Trading

In this phase ASX Trade automatically matches all trades in Price/Time Priority on a continuous basis.

4pm - 4:10pm Pre CSPA

Trading stops and brokers enter, change and cancel orders in preparation for the market closing.

4:10pm-4:12pm

CSPA Closing Single Price Auction. ASX Trade calculates closing prices during this phase.

4:12pm-5pm Adjust

Brokers may ‘tidy up’ their orders by cancelling unwanted orders, amending orders, etc. New orders cannot be entered. Brokers wishing to trade contact each other by telephone.

5:00pm-6:50pm Adjust ON

6:50pm-6:59pm Purge Orders

Orders that are expired, too far from market etc. will be centrally inactivated or purged.

6:59pm-7pm System Maintenance

Administration or system adjustment session.

7pm-9:30pm Close

No Trading Messages may be entered or amended in ASX Trade and no matching or Auctions take place.

9:30pm-2:25am System Unavailable

The system process the night batch during this session state, this involves the update and addition of securities.

2:25am-7:00am Close

No Trading Messages may be entered or amended in ASX Trade and no matching or Auctions take place.

*Random +/- 15 secs

Equity Market Phases (Sydney Times)

Centre Point Order

Execution at the midpoint of the best bid and offer

Execution only with another Centre Point Order

For all ASX Cash Equities Anonymous order size

Two order types Centre Point Market

OrderCentre Point Limit Order

A day-only order Without minimum size

requirement.

Central Point Crossing Order

Option to confirm or reject crossing up to 30 seconds after initiation

Full order depth displayed

Undisclosed Order

Fully disclosed in terms of execution price but undisclosed regarding execution volume, provided it remains above the minimum order size of AUD500, 000

When it is partially traded and the remaining order value is less than the minimum undisclosed value, the system will automatically disclose the remaining volume without affecting the order’s priority.

Shown volume is

immediately executable

Drop to the bottom of the time

queue once executed

Cycle trough until

the total volume is executed

Large limit order

VolumeShownVolume

Total Volume

Min. 5000 shares

Max. allowable ratio is 100:1

Step 1

Step 2

Step 3

Iceberg Order

Trading Cost

SOURCE: a research made by Associate Professor Andrew Lepone and Anthony Flint of The University of Sydney

ASX Limited ABN 98 008 624 691 (2011). IPO: the road to growth and opportunity. Retrieved 24th October 2011 from http://www.asxgroup.com.au/listing.htmASX Limited ABN 98 008 624 691 (2011). International listing on ASX: the road to growth and opportunity. Retrieved 24th October 2011 from http://www.asxgroup.com.au/listing.htmASX Group (2011). Retrieved 25th October 2011 from http://www.asx.com.au/trading_services/new_market_services.htmASX Group (2011). Retrieved 25th October 2011 from http://www.asx.com.au/trading_services/asx-trade24.htmASX Group (2011). Retrieved 25th October 2011 from http://www.asx.com.au/documents/resources/asx_trade_new_order_types.pdf ASX Group (2011). Retrieved 25th October 2011 from http://www.asx.com.au/documents/trading_services/centre_ point_market_impact_research_paper.pdfASX Group (2011). Retrieved 25th October 2011 from

http://www.asx.com.au/documents/resources/shares_course_05.pdf?shares_course_05_text

Reference