5: Valuing Shares5-5b SECoNdARY MARkEtS FoR EQUItY SECURItIES
The secondary markets permit investors to execute transactions among themselves – this is the
marketplace where an investor can easily sell his or her holdings to someone else. In Australia, for listed
shares, the Australian Securities Exchange conducts its operations entirely by computer, using the Stock
Exchange Automated Trading System (SEATS).
The same is also true for the other, smaller, stock exchange, Chi-X Australia. This exchange is owned
by Chi-X Global, which also operates exchanges in Canada and Japan. It began trading in October 2011
(the original trading in Australia began in the 1830s), so is a recent entrant to the equities market. Chi-X
Australia offers trade in all of the 2100 ASX-listed companies. It sees its competitive advantages as being
narrower spreads on the buy and sell prices quoted for trade, and faster ‘queue times’ before trades are
executed.
The New Zealand Stock Market (NZSX Market) is the primary market for share trading in New
Zealand, with more than 200 companies listed; but there is also the NZ Alternative Market (NZAX
Market), which is aimed at small to medium-sized companies with fast growth. The latter provides its
trading services at lower cost than the NZSX Market.
We shall focus on the ASX, the largest stock exchange in the Australasian region. Brokers can
enter the SEATS on behalf of their clients who wish to buy and sell shares in listed companies;
and another computer system (Clearing House Electronic Sub-register System, or CHESS)
automatically clears the trades when it finds matches of price and volume. Australian company
shares can also be traded in the over-the-counter (OTC) market, which deals in smaller, unlisted
securities.
As we have noted, the trading of shares on the Australian Securities Exchange (ASX), starts
at the Stock Exchange Automated Trading System (SEATS) computer system. An individual or a
company contacts a brokerage company to carry out trades in shares through an auction system
that underpins SEATS. Those with shares for sale, or those wishing to buy shares, post their sell
and buy orders through their brokers on SEATS, with the expectation that buy orders will be
filled at the lowest acceptable price and sell orders filled at the highest acceptable price. If the
computer program registers that, for example, a person wishes to buy 100 shares of company XYQ
at a price no more than $10.00, and another person wishes to sell 50 shares of XYQ at a price
no less than $9.50, then a deal can be struck automatically by SEATS for trading 50 shares (the
minimum number acceptable to both parties) for a price that is calculated as a weighted average
between $9.50 and $10.00. This price would satisfy both buyer and seller. The satisfied deal is
then cleared through Clearing House Electronic Sub-register System (CHESS), arranging the transfer
of shares from seller to buyer and the payment going in the opposite direction, within three
working days following the initial deal. The information that there is a new shareholder in the
company is also transmitted to the company. Companies must know the contact details of their
shareholders (or their agents) in order to be able to communicate important information to them
or to send them their dividends when due.
Kent Womack, University
of Toronto
‘It’s very easy for
analysts to have conflict
of interest problems.’
See the entire interview on
the CourseMate website.CoURSEMAtE
SMARt VIdEoChi-X Australia
The stock exchange
established in 2011 for trading
Australia company shares. It
now trades all companies also
listed on the ASX
Australian Securities
Exchange (ASX)
The primary stock exchange
operating in Australia for
trading shares in publicly
listed companies
Stock Exchange
Automated Trading
System (SEATS)
The Internet-based brokerage
system operated by the ASX
to allow investors to buy
and sell their share orders
electronically through their
brokers
Clearing House Electronic
Sub-register System
(CHESS)
The computer-based
settlement and transfer
system used by the ASX to
finalise trades in shares and
their payments