In Australia, the sharemarket is operated on a national basis by ASX, a non-government organisation which became a listed company on 14 October 1998. Natural persons and corporations, which meet certain requirements, are able to seek recognition as Affiliates or Participating Organisations of ASX and call themselves stockbrokers.

Two Market Functions
A stockmarket may be thought of in terms of two separate functions:

1. The primary market function where companies can raise long-term funds for their operations by issuing shares (and other securities) to investors; and

2. The secondary market function where investors can buy and sell those shares at current prices as determined by other investors in the market.

A Place where Companies can Raise Capital
A company that wishes to set up a new business or expand its existing business can raise the capital it requires by issuing shares to investors. The investors become shareholders in the company, meaning they are part owners of the company and share in its profits and growth.

Companies wishing to have their shares traded on ASX must first be listed. To become listed, a company must meet certain criteria, including being large enough for there to be a market in its shares. It must also agree to abide by the ASX Listing Rules which, amongst other things, require it to keep the market informed of its activities and to regularly report profits and other financial information.

As at 30/06/02, there were over 1,200 entities listed on ASX. The total value of shares listed on ASX was more than $820 billion and during the 1998/1999 financial year investors bought and sold shares worth more than $280 billion.

A Marketplace for Buyers and Sellers
After a company has listed on ASX and issued shares to investors, the shares can then be sold to other investors in the sharemarket.

Private individuals can buy shares directly through an adviser at a stockbroking firm, or they can place their money with a fund manager or financial institution, perhaps one which manages an equity trust or superannuation fund. The fund manager will decide where and how to invest the money.

The buying and selling of shares takes place on the ASX electronic trading system known as SEATS®, with staff at stockbroking firms entering buying and selling orders on behalf of investors. SEATS® compares the orders and automatically executes trades whenever two orders match. Monies and shares are then exchanged accordingly.

The price of the shares is determined by the forces of supply and demand, as private investors and fund managers decide at what price they will buy and sell. Private investors are very important in the process as they control a large percentage of total funds invested in the sharemarket.

Creating Wealth for Australia
The sharemarket provides an opportunity for investors to contribute to and benefit from the wealth-creating activities of companies and in that way participate in the broader Australian economy.

In a typical week, there would be few Australians who do not buy goods and services produced by one or more of the companies listed on ASX. For example, you may shop at Woolworths or Coles Myer; bank at Westpac, National Australia Bank, ANZ or the Commonwealth; or read The Australian published by News Corporation.

When you buy goods or services from these companies, you are contributing to their growth and providing an opportunity for higher profits, which may enable them to pay higher dividends to shareholders.

For private investors, wealth is created in the form of dividends and other income and capital gains from selling shares as prices rise. The company also benefits because, if there is strong interest in its shares, it may be able to raise additional capital when it needs to in the future.

Sharemarket Supervision and Security
One of ASX's major roles, as a self-regulatory organisation, is to maintain the integrity of the markets it operates. It regulates the conduct of stockbrokers through comprehensive Business Rules and regular monitoring of compliance with them. Similarly, listed companies must comply with ASX's Listing Rules, as well as with the sections of the Corporations Law that apply to them. ASX constantly monitors market activity to detect any instances of a breach of its rules or of the law, which it either takes action against itself or refers to the Australian Securities and Investment Commission (ASIC) for investigation.

Maintaining investor confidence through the fair and efficient transaction of investors’ orders and correct settlement procedures is important to all market participants. The automated trading system SEATS and settlement and transfer system CHESS® operate as important safeguards in this regard.

ASX also has a Surveillance Department which electronically monitors market activity for any irregularities and unfair practices. Such surveillance acts as a preventative measure in that, if regulations are broken, it is quickly discovered and action by the appropriate authorities is taken against those involved.

The National Guarantee Fund (NGF) provides investors added protection from certain defaults by a stockbroking firm acting on their behalf. Within the limits set out in the governing legislation, the NGF guarantees the completion of sales and purchases of "quoted securities" entered into by a stockbroker on ASX's equity (and debt) market where those transactions are required to be reported to ASX by the stockbroker. The legislation also provides the circumstances in which claims on the NGF may be available to compensate for losses resulting from unauthorised transfers, the stockbroker's wrongful cancellation of a certificate of title to quoted securities or failure to do so, or stockbroker insolvency when the stockbroker fails to meet its obligations to a person who had previously entrusted property to the stockbroker.

Types of Shares and Derivatives
Not all securities traded on ASX are the same. It is important to know about the different Types of Shares and Derivatives in order to understand your rights and responsibilities as a shareholder.