August 2001 Volume 82 Number 8 "serving the protectors"
Shares
By Ruth McCance, ASX Investor Education

Buying and selling shares

Last financial year (2000/2001) over 130 billion shares valued at around $416 billion changed hands in almost 13 million share trades on the Australian Stock Exchange. ASX has developed world-class systems and processes to make all of this possible. So how does it work and how do you, as an individual, take part?

First, the sharemarket deals only with existing shares. If you want to buy shares in a company, which is listing for the first time, you will need to get a copy of the prospectus and follow the procedures it outlines for purchasing initial shares. Information on floats is available at www.asx.com.au

Second, contrary to many people’s perceptions, the sharemarket no longer involves brokers on a crowded trading floor. Since 1987, ASX has operated a computer-based trading system called SEATS (Stock Exchange Automated Trading System). SEATS operates like an auction to match buyers and sellers. Trades are executed automatically in strict price/time priority whenever two orders match. Every order is processed on an equal basis and larger investors do not get priority.

ASX also commits more than $10 million per annum to sophisticated monitoring systems to help ensure the integrity and fairness of the market.

If you want to buy or sell existing shares, you need to place your order through a broker. Most stockbroking firms require you to forward the necessary funds before they will accept your first order to buy shares.

When placing an order with your adviser, your adviser should be able to tell you how many buyers and sellers are in the market for the shares and how they have traded over the day. Your order should include the company name and type of shares, number of shares and the price at which you wish to buy or sell. It is advisable to double check your details are correct before submitting your order.

There are two ways you can nominate what price you will accept when placing an order:

• At market (sometimes called “at best”) - meaning you will accept a price at or about the market price of the shares at the time you are placing your order.
• At limit - meaning you set the highest price you are prepared to pay or the lowest price at which you are prepared to sell.

Your stockbroking firm will issue a contract note, advising you of the details of the transaction. The contract note may have significance for tax purposes and you should first check the following details are accurate:

• The company and type of shares.
• The price at which the shares were traded.
• Brokerage.

So now you have found a buyer or seller for your shares, however, like an auction, the settlement (exchange of ownership and money) still has to take place. CHESS is an ASX computer system that manages the settlement process. It provides all investors with the security of a central hub that exchanges money and shares at the same time. By facilitating this process electronically, CHESS provides a service that is faster and more efficient than paper-based alternatives. The cost of using CHESS is included in your brokerage. You generally must pay for shares you purchase within three business days after the transaction. This system is called T+3, meaning trade date plus three days.

Since 1998, when paper share certificates were eventually phased out, ownership of shares has been recorded electronically. Investors can choose to have their holdings registered in one of two ways:

• On an Issuer Sponsored Subregister - this means the company which issued the shares (e.g. Woolworths) maintains the subregister.
• On the CHESS subregister - to be sponsored by CHESS you will need to enter a sponsorship agreement with an approved CHESS sponsor, usually a stockbroker.

You will only get statements if you buy or sell shares, however, you should then receive a statement within a month from the date of the transaction, confirming changes in ownership.

Although sizeable, the share market is set up to cater for your needs as well as the big institutional investors, with innovative technology to trade shares and settle the transaction consistently and continually. For more information visit www.asx.com.au

This article contains general information only. It is not intended as and must not be relied upon as investment advice. You should consult a licensed professional advisor prior to making any investment decision.

The information contained in this article is provided in good faith and derived from sources believed to be accurate as at the date of publication. However, no warranty of accuracy or reliability as to such information is given. Australian Stock Exchange Limited and its associated and related companies will not be liable for any loss or damage arising in any way from or in connection with anything provided in or omitted from this article or from any action taken or inaction in reliance on the article. This article does not contain an invitation or offer to invest in securities or other financial products and nothing in this article is to be taken as ASX endorsing promoting or expressing any opinion on any securities or other financial products.

©Australian Stock Exchange Limited ABN 98 008 624 691. All rights reserved.

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