The Australian Share Market

Essay by bunthina123 July 2008

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Recent decades have seen an extraordinary surge in the level of share ownership in Australia. According to the Australian Stock Exchange, Australia has more shareholders per head of population than any other country-with over half the adult population now holding shares. This has made the operation of the share market an increasingly important aspect of the every day lives of many Australians, and a more important part of the market economy.

The share market has two key roles in Australia’s financial system. Its first role is to allow companies to raise funds by selling new shares to investors. A share, also known as an equity security, is a financial asset that gives its holder part-ownership of a company. The share market’s second role is to allow a company’s existing owners, known as share holders, to sell their shares to those who wish to buy a stake in the company.

For a firm to issue shares, it must be a company- ie. it must be ‘incorporated’. An incorporated business is one that is recognised as a separate legal entity from those individuals who own or manage the business.

The share market deals only with the trade in shares of public companies (one whose shares are not subject to any transfer restrictions). Like product markets, the share market brings together a buyer and a seller in a medium of exchange. Most share transactions take place through a market facilitator known as a stock exchange. In many ways, the stock exchange is simply the physical manifestation of the market; buyers and sellers coming together in the one place and at the one time for trade in a range of securities such as shares, company options, bonds and trusts. It is important to note that the share market does not have just one...