As this developed, the structure of organized exchanges and the trading policies imposed by regulatory bodies continue to influence the turnover of physical shares, price formation of equities and trading costs, while generally exerting pressure on the behavior of market participants and the overall competitiveness of securities markets.
This report will discuss the structures and regulatory frameworks of the equity markets of Australia and the United States of America. As a reference point, the major exchanges in both countries will be compared, where the NYSE is used as benchmark to the exchange activities of ASX and Nasdaq. Also, the report will include a rundown of equity-funding alternatives for a listed US corporation, as required.
The equity market of Australia is operated largely by its organized stock exchange, the Australian Stock Exchange (ASX). Trade of ASX stocks takes place on a fully competitive and automated order-driven trading system, known as the Stock Exchange Automated Trading System (SEATS) (Elvis Jarnecic, June 1999). Trading is facilitated through the placement of a purchase order by a market participant with a broker, either by way of telephone or online through the internet, on regular trading days.
In contrast, the New York Stock Exchange or NYSE operates under a hybrid market structure. Kaj Hedvall (CEFA, 2006) defines hybrid markets as a specialists market and the NYSE as an order-driven, floor-based, continuous market with specialists. Also known as an auction market; these specialists converge on the floor of NYSE to facilitate the reporting of bids and asks, execute trade and maintain order in the floor.
NASDAQ on the other hand is a quote-driven, dealer market. At present, there are over 500 dealers-also called market-makers, composed of large investment companies, who buys and sells shares of stocks through a personal inventory of NASDAQ-listed stocks to earn a profit from a regulated bid/ask spread.
NASDAQ is the largest screen-based market in the United States. Screen-based means that there is no physical location, but trading is based on computers and other communication mediums (Block, S et al, 2002). Thus, NASDAQ market makers conduct the exchange not through a physical trading floor, but by way of an electronic network.
While each security under Nasdaq has an average of 14 market makers competing against each other, only one specialist is designated to every NYSE-listed stock.
It can be observed that Australia operates a purely order-driven market while the major exchanges of the USA, conduct trading in a purely quote-driven market for NASDAQ and a cross between the two pure market models, the hybrid market, a structure of the NYSE.
The advantage of an order-driven market is the inherent transparency of the system since all buy and sell orders of participants are posted on the market, providing information on which prices investors are willing to buy or sell shares. This is not an attribute of a quote-driven market where only the bid and ask offers of market makers are displayed. However, investors enjoy a guarantee of the