Stock Exchange No. 2 in Region

With a market capitalization of $180 billion, the Australian Stock Exchange, based in Sydney, regards itself in a regional context as the principal Asia-Pacific exchange after Tokyo, which remains completely dominant.

The exchange's managing director, Gavin Campbell, said the "one thing that differentiates us from our fellow exchanges in the region, apart from matters of quality, is that we are an exchange serving an entire continent, with operations in six widely spaced cities."

Share trading was carried out in Australia as early as the 1820s, and toward the end of the last century, stock exchanges proliferated.

Sydney had no fewer than nine; Melbourne, at least four, and mining towns scattered across the country had many others.

Indeed, the legacy of this is that the Australian market today is still heavily weighted toward mining, with resource stocks accounting for 40% of the main index.

With the collapse in the late 1890s of the Australian mining and commodities boom, most of the 30 or so stock exchanges in the country collapsed, as well.

Nevertheless, some survived, including one in each of the six state capital cities, which were then the capitals of separate colonies. Australia did not federate until 1901.

These exchanges competed strongly, and evenly bitterly, but did manage to get together sufficiently in 1937 to form an Association of Australian Stock Exchanges to promote their common interests.

1987 Amalgamation

This arrangement lasted until four years ago, when the six state exchanges amalgamated to form the Australian Stock Exchange.

"Although in one sense, we have a long history; in another, we are one of the youngest stock exchanges in the world," Mr. Campbell said.

As exchanges go, Australia's is middle-sized so that, while certainly not a challenger to New York or Tokyo, it is about twice the size of the Mexican exchange and four times as big as Vienna's.

Based on Morgan Stanley & Co. accumulation indices, the Australian market has gained 100% in the last five years, compared with 83% for New York, 96% for Tokyo, and 113% for London.

Staffed by 600 employees, most of whom are based in Sydney, the Australian exchange lists 1,102 companies on its main board. It also has a thriving options market, which is the eighth-largest in the world, and the exchange has recently introduced trading in long-dated options in the form of sponsored warrants.

Trading Floor Closed

One of the most significant developments has been automation, one of Mr. Campbell's most enduring successes as managing director.

"It's about 3 1/2 years now since we began to phase in an electronic trading systems and a little over nine months since we closed our trading floor completely in favor of computers," Mr. Campbell said.

Introduction of a screen-based trading system was part of a revolution in the Australian stock market that has been going on for several years and is nearing completion - "to the extent that anything is ever complete in this dynamic industry," Mr. Campbell said.

The Australian exchange does not have market makers. Rather, it displays buy and sell orders, and a sale results when there is a match.

The automated trading system, which was gradually phased in and completed with elimination of floor trading late last year, is known as SEATS, for "stock exchange automated trading system."

Automating Settlements

Another major development will take place toward the end of this year, when the exchange introduces a fully automated settlement system, which will be known as CHESS, for "clearing house electronic subregister system." This will be a paperless system - eliminating transfer forms and settling net cash positions among brokers and between brokers and institutions that choose to participate - using direct electronic links with banks.

"It will enable us to reduce the fixed settlement period to three days after trade, which is the international standard targeted for the end of 1992," Mr. Campbell said.

One other area of vital concern to Mr. Campbell is regulation - and the negative perceptions of Australia that have built up with the collapse of high-profile entrepreneurs such as Alan Bond and Christopher Skase. Much of the damage is attributed to poor enforcement of an already inadequate regulatory framework.

"I wouldn't like to guess whether we were relatively better or worse than the U.S., but we were bad enough for our reputation internationally to have been dented," Mr. Campbell said. "Australia cannot afford a reputation for dishonesty in its corporations or in its markets."

A crucial step in improving corporate regulation in Australia was introduction, from the beginning of 1991, of a national regulatory body to replace the previous system of independent state regulators.

The Australian Securities Commission has much greater resources than its predecessors had to enforce corporate law.

What is more, new legislation governing corporate practices now means Australia has one of the strictest regulatory regimes in the world.

"In its complementary role, the [exchange] has tightened its disclosure requirements still further and instituted a world-class market surveillance system," Mr. Campbell said.

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