Fundamentals Of Finance
Genre: Finance

1. Explain the major purposes of a stock exchange. 2. Identify and explain three types of securities that can be traded by individual investors on the Australian Securities Exchange (ASX).3. Explain how companies go about listing on the ASX.4. Briefly explain three listing requirements that are imposed upon companies by the ASX.
5. What is the ASX profit test and asset test and why are these rules in place?

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Fundamentals Of Finance



The major purposes of a stock exchange are (PWC, 2010):

  • To provide a common platform to the investors and companies to invest and raise capital.
  • To facilitate smooth day to day buying and selling of securities.
  • To build the trust among investors and companies by being a mediator in all the transactions
  • To list the companies on the stock exchange (making it a public company from a private company)


Following three types of securities can be traded on ASX by individual investors (Official website of ASX, 2012):

  • Shares: Shares represent a share of ownership in a company. Shares can be equity shares or preference shares. The investors get dividend as their rewards for investing in shares.
  • Futures and Options: Futures and options are derivative instruments and are mainly traded based on the future price expectations of the investors. Investors enter into futures and options contract and make profit or loss at the time of contract expiration.
  • Managed Funds: Financial service providers collect the funds from the investors and build the portfolio of securities on behalf of investors. These are called managed funds and investors get dividend as the reward for investing in managed funds.


Following are the step-wise procedure for companies to get listed on ASX (ASX, n.d.):

  • The process starts with companies discussing the intention of getting listed on ASX with ASX.
  • Once the company takes the decision to get listed on ASX after the discussion with ASX, companies appoint professional advisors who can guide the company throughout the process for listing.
  • The next step is to prepare the Prospectus or information memorandum as required and stipulated by ASX. All the required information is furnished in this document and it is of utmost important from the point of view of prospective investors.
  • After the preparation of required documents, company officially applies to list the company on ASX and makes the payment of application fees.
  • After the submission of application, ASX reviews the application. If the initial requirements are met, ASX provide conditional listing approval.
  • ASX checks various conditions based on the type of listing applied by the company and if conditions are met, it lists the company on ASX. The major conditions include profit test and asset test.

After all the above steps, the listing procedure ends and the company is officially listed on the ASX.

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