HC2091 Business Finance Assignment Sample : Comparative Analysis of the ASX and NSX 

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Executive Summary

This report presents a comparison of the Australian Security Exchange and the National Stock Exchange of Australia. The listing requirements of the ASX and the NSX include the criteria of market capitalisation and number of shareholders. The ASX has stringent requirements of listing as compared to the NSX due to the requirement of more shareholders and more market capitalisation. The indices listed in the ASX and the NSX are also presented along with the importance of indices for investors. The financial products traded on the ASX like shares, bonds and indices are listed along with their subcategories. Lastly, an overview of the history of the ASX has been provided along with the industry capitalization metrics.

Introduction

The Australian Securities Exchange (ASX) is based in Sydney, Australia and is a leading exchange of financial market across the world. NSX is the National Stock Exchange of Australia, which is located in Sydney and around 75 companies are listed for checking their criteria of meeting the listing requirements. This report carries out a comparative analysis amongst the ASX and NSX. The listing requirements of ASX and NSX are identified along with an assessment of the exchange with more estrangement requirements for listing. The indices of the exchanges have been listed along with the financial products of ASX and their subcategories. Lastly, the history of ASX has been stated along with the industry categorization of the companies that are listed.   

HC2091 Business Finance Assignment

Listing requirements in ASX and NSX and level of stringency

The listing requirements for the companies in the ASX includes admission with the categories of general admission, debt issuer or foreign exempt. The listing requirements for general admission in the ASX include the admission criteria based on the structure, size and shareholders of a company. The companies are required to have a minimum of 300 shareholders who are non-affiliated having a minimum share value of A$2,000 (ASX, 2020). The company size is determined by the profit test or asset test wherein the company has to have a profit of A$1 million in the previous 3 years and a profit of A$400,000 in the last 12 months. The assets should be A$3 million net tangible assets or a market capitalisation of A$10 million. Structure requirements for companies to be listed in the ASX includes a constitution abiding by the present listing rules along with keeping designated personnel for communicating with the ASX.

The NSX listing requirements include a minimum of 50 security holders in the company in addition to an issued capital of 25% for the public. The companies are required to have a trading record of accomplishment of 2 years along with an A$500,000 market capitalisation of the listed securities (NSX, 2020). The companies are required to appoint an advisor from the ASX or the company have a constitution, which is compatible with ASX. The level of stringency for the ASX is higher than the NSX due to the requirement of more non-affiliated shareholders in addition to the requirement of much higher market capitalisation and profit. 

Listing of indices of ASX and NSX

The indices listed in the ASX include:

  • Capitalisation indices (ASX, 2020)
  • Volatility indices
  • Franking Credit Adjusted indices
  • Strategy Indices
  • Fixed Income indices
  • Sector Indices.

The indices listed in the NSX include:

  • NSX All Equities Index
  • SIMVSE All Equities Index
  • NSX All Agriculture Index (NSX, 2020)
  • NSX All Technology Index
  • NSX All Community Index
  • NSX All Resources Index
  • NSX All Finance Index
  • NSX All Property Index
  • NSX All Investment Index

Importance of indices as per the investors

Indices present a hypothetical account of the securities of particular particulate market. Indices are important for the investors as it enables them to have a conception of the performance of mutual funds and EFTs in the market. S&P 500 is a popular index, which creates a benchmark in the stock market. The indices enable the shareholders to know how their investment might perform in the future (Hawn, et al., 2018). Indices serve as a benchmark for making investment decisions by the investors globally by tracking the ETFs. The passive investors are required to keep track of the indices for taking decisions for investing. The investors can track the performance of publicly listed companies with the help of the indices. The investors also invest in indexes for achieving a fixed equity rate. Indices are important for passive investors, as it requires lower fees for management and expense ratios. The indices of the market enable the investors to have an overview of the investment portfolio and index investing based on the benchmarks and probable performance of the market segments (Lo, 2016). The indices enable the investors to assess the condition of the stock market as the investors decide to invest in a particular sector based on the market performance based on the weighted average.

Financial products and the subcategories in ASX

The financial products traded in the ASX includes are:

  1. Shares
  2. Indices
  3. ETPs
  4. Bonds

All these products are traded via ASX. More than 2,200 enterprises have their listed shares in the platform whereas 24 sectors are associated with the ASX for indices. The ETPs are the financial products traded in the platform for investment whereas the  ASX trades the bonds issued by the governments and the companies (ASX, 2020).

The subcategories of the identified products are:

Shares:

  • Ordinary shares
  • Preference shares
  • Partly paid shares.

Indices:

  • Volatility
  • Capitalization
  • Fixed income
  • Sector
  • Strategy
  • Residential property

ETPs

  • Cash
  • Australian
  • Commodity
  • Currency

Bonds:

  • Fixed-rate
  • Indexed bonds
  • Floating rate

Key features of the financial products and comparison of risk and return

Shares are the financial products, which provides ownership rights to the investors and has a high potential for generating profits. This is due to the linkage of the performance of the company with the price of shares. However, there is also a high magnitude of risk involved in shares as the prices go down if the enterprise is unable to generate profits. The shareholders are paid dividend when the company makes a profit. Bonds are the tradable assets of organisations and provide a fixed income to the investors due to paying them a fixed rate of interest for a period. The prices of ponds are increased due to a decrease in the rate of interest (Hawawini, 2017). The bond has a date of maturity when the organisations of the government have to pay back the principal amount to the investor. The comparative risk is lesser in case of bondholders as they are the first to be paid if the company is liquidated. Hence, the payment is higher in bonds than shares along with the bondholders getting first preference for being paid the dividend then the shareholders. The key feature of exchange-traded products includes low annual fees. The comparative risk is low for exchange-traded funds and it is suitable for the small investors as the received the payments from the stocks every quarter and provides them with greater tax benefit than bonds and shares. The industry classification standard of Standard and Poor followed globally is used in trading in the ASX.

Historical evolution of ASX

Australia had six independent stock exchanges having their roots to the 1800s, which were combined through drafted legislation by the Australian parliament in 1987. The combination of existing exchanges resulted in the inaugural of the Australian Stock Exchange, which further became merged with the Sydney Futures Exchange in 2006 and started functioning as the Australian Securities Exchange. The corporate structure of Australian Securities Exchange had been revised in 2010 and the entity presently operates as the ASX group for better positioning in the financial markets of the world. A Board of directors and a team of management governs the ASX limited at present and it is regulated by ASIC and RBA. The market capitalisation of ASX is 2 trillion dollars and it provides listing as well as trading, clearing and settlement services to the companies along with technical and information services (ASX, 2020).

Industry categorization and the number of listed companies in the ASX

Industry categorisation is done in the ASX based on the GICS standard which had been developed with jointly with Standard and Poor. Previously, 24 sectors being unique to Australia ware considered.  However, the Global Industry Classification Standard comprises of 11 sectors derived from the 24 Industry Groups. Additionally, there are 69 industries along with sub-industries numbered at 158 (ASX, 2020). The industry categorization of the ASX encompasses more than 43,000 global companies. The GICs benefits foreign investors to evaluate the local markets in addition to analysing the market throughout the world through the classification of the industry.

The industry categorisation is done for enhancing transparency and efficiency in the process of investment. Some of the sectors comprise of consumer discretionary, utilities, retail estate, information technology, healthcare etc. The total number of companies listed in the ASX is 2146 as of 2019 (ASX, 2019).

Conclusion

From this report, it is concluded that the listing requirements of the Australian Securities Exchange are much more stringent than the National Stock Exchange of Australia. The listing of indices in the ASX includes capitalisation indices along with sector indices whereas the NSX has the indices including NSX All Technology Index and NSX All Community Index. the indices are essential for investors as it enables them to analyse the viability of investment in the future whereas the different products traded in the ASX include shares bonds and indices.

References

ASX, 2019. The Official List (Listed Companies). [Online]
Available at: https://www.asx.com.au/asx/research/listedCompanies.do
[Accessed 20 April 2020].

ASX, 2020. Corporate overview. [Online]
Available at: https://www.asx.com.au/about/corporate-overview.htm
[Accessed 20 April 2020].

ASX, 2020. GICS. [Online]
Available at: https://www.asx.com.au/products/gics.htm
[Accessed 20 April 2020].

ASX, 2020. Listing requirements. [Online]
Available at: https://www.asx.com.au/listings/listing-with-asx/listing-requirements.htm
[Accessed 20 April 2020].

ASX, 2020. Types of bonds. [Online]
Available at: https://www.asx.com.au/products/bonds/types-of-bonds.htm
[Accessed 20 April 2020].

ASX, 2020. Types of indices. [Online]
Available at: https://www.asx.com.au/products/types-of-indices.htm
[Accessed 20 April 2020].

Hawawini, G., 2017. Bond Duration and Immunization: Early Developments and Recent Contributions. 2nd ed. London: Routledge.

Hawn, O., Chatterji, A. & Mitchell, W., 2018. Do investors actually value sustainability? New evidence from investor reactions to the Dow Jones Sustainability Index (DJSI). Strategic Management Journal, 39(4), pp. 949-976.

Lo, A., 2016. What is an index?. The Journal of Portfolio Management, 42(2), pp. 21-36.

NSX, 2020. How To List. [Online]
Available at: https://www.nsx.com.au/listing/how-to-list/
[Accessed 20 April 2020].

NSX, 2020. Indices. [Online]
Available at: https://www.nsx.com.au/investing/indices/
[Accessed 20 April 2020].

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