A BRIEF HISTORY

Stockbroking began in Australia in New South Wales in 1828. By 1889 each of the six Australian colonies had established its own stock exchange.

This arrangement continued until 1987 when the six state exchanges amalgamated to form Australian Stock Exchange Limited (ASX). For the first time since Federation, Australia had a national stock market administered by a national institution.

By 1990, the traditional trading floors had disappeared and all trading is now done electronically through SEATS - the Stock Exchange Automated System. Brokers receive buy and sell orders from clients and these are immediately entered on to the national market from computers in brokers' offices and trades take place without further human intervention.

The results of the trades are passed automatically to CHESS - the Clearing House Electronic Subregister System which enables the electronic transfer of securities eliminating paper transfer documents and share certificates. These efficiencies have permitted settlement time to be reduced to three business days after the trading day (T+3).

PRIMARY AND SECONDARY MARKETS

Like any other market, the stock market is a market place for buyers and sellers. In the case of the ASX, it is a market place for the sale and purchase of securities (principally, but not solely, ordinary shares) of companies that have fulfilled the requirements for listing and are, in fact, listed on ASX. This market is sometimes known as the secondary market.

The market also provides opportunities for companies to raise long-term capital by offering securities to the public. This aspect of the market is referred to as the primary market. These companies may be ones which have not previously been listed on the ASX but which comply with the ASX listing rules and other requirements for listing such as minimum capitalisation and spread of shareholders. In other cases, companies already listed may offer securities to the public in a bid to raise additional long-term capital.

Investors in a company's shares become shareholders and are able to receive dividends paid by the company and share in the company's growth reflected in a share price increasing over time.

The primary market is of great economic importance for the growth of Australian commerce and industry providing as it does, opportunities for individuals to invest in newly floated companies as well as in established companies which are raising additional capital.

Nevertheless it is in the secondary market that most investors will be primarily engaged. An individual investor may engage a stockbroker to purchase shares in listed companies or other securities such as units in listed property trusts on his or her behalf, or the investor may place funds with a funds manager or financial institution which will pool such contributions and, through the medium of a trust, invest those funds on behalf of the investors in securities chosen by the manager.

WHAT DETERMINES SHARES PRICES?

The usually accepted method of valuing a share is to compute the present value of all the dividends that that share will produce in the future. Of course, analysts often differ in their views and at the best any such calculation is necessarily only approximate. Nevertheless, it is a useful method of arriving at some meaningful underlying value of a share.

In reality, day to day prices in the market, are driven by the forces of supply and demand as investors decide at what price they will buy and sell shares. If there are few sellers but many people wishing to buy, the price will rise. In the reverse situation the price will fall.

MARKET INTEGRITY

A major role of the ASX is to ensure the integrity of the markets it manages. One of the principal ways in which it does this is to require continuous disclosure by each listed company of any information which might reasonably be thought to influence the share price of that company. It strives for a fully informed market.

Insider trading, that is, trading by persons in possession of price-sensitive information that has not been publicly disclosed to the market, is a serious criminal offence. The ASX maintains a sophisticated market surveillance section which constantly monitors market activity to detect any breaches of the law or its rules. The ASX also regulates stockbrokers who are governed by the ASX's stringent Business Rules. The ASX regularly monitors brokers to ensure compliance with them.

NATIONAL GUARANTEE FUND

Legislation has established the National Guarantee Fund to protect investors against certain contingencies. An investor may have a claim on the fund if he or she suffers loss as a result of an unauthorised transfer of securities or certain other delinquencies by a stockbroker. The Fund may also protect an investor from the consequences of stockbroker insolvency where a stockbroker fails to meet its obligations to a client who has entrusted property to the broker. In most cases the Fund also guarantees the completion of sales and purchases of "quoted securities" on the ASX's equity and debt markets.

SHARE HOLDINGS AND THE CHESS SYSTEM

With the abolition of share certificates for almost all companies listed on the ASX and the introduction of electronic share transfers and settlement, new methods of keeping track of shareholders' holdings have been introduced.

There are two ways in which a client of HOLST may have his or her shareholding registered. You may become Issuer Sponsored by each company in which you hold shares or, as a client of HOLST, we can sponsor you on to the CHESS system. To do this we must ask you to complete a CHESS Sponsorship Agreement.

CHESS has many advantages:

• It is free.
• Instead of having different Issuer Sponsored Holder Reference numbers for each company in which the investor holds shares, one CHESS Holder Identification (HIN) number will cover all of your shareholdings registered with CHESS.
• If you change your address or wish to have your tax file number registered with a company, it is sufficient to advise HOLST in writing and HOLST, through CHESS, will notify all companies in which you have HOLST sponsored holdings and all companies in which you may later acquire shares.
• Sellers not on CHESS must advise HOLST of their issuer Sponsored Share Reference number(s) when instructing us to sell. The ASX imposes penalties on sellers who are late in providing these numbers. Sellers on CHESS need do nothing.
• If you have a HOLST Private Account with St. George Bank, you can complete sales and purchases with just one phone call to your Adviser at HOLST.

Portfolio analysis on request

If you are on CHESS, in addition to being notified yourself, as your sponsor, HOLST is notified electronically of any changes in your shareholding. These may result not just from purchases and sales but also from Rights Issues, Bonus Issues, and participation in Dividend Reinvestment Plans.

This means that your adviser always has an up-to-date record of your portfolio on which to base recommendations. A comprehensive print-out can also be supplied on request.

HOLDING STATEMENTS

At the end of each month during which any change occurs in your holding of securities in a company, the CHESS Securities Clearing House will issue to you a Holding Statement setting out the details of the changes made. The statement will show increases in a holding arising from purchases, bonus issues, and DRP transactions, and decreases arising from sales. The holding balance, shown as the last item on the statement is the investor's end of month holding in the securities of the company for which the statement was issued.