AUSTRALIAN FINANCIAL MARKET
The information boards at the Australian Stock Exchange (ASX) show the market down more than 1% in Sydney, Wednesday, May 4, 2016. (AAP Image/Dean Lewins) NO ARCHIVING
The Australian financial market has seen a strong growth since the early 1980’s both in terms of trading in Australian dollars and other currencies. There have been two phases of growth between 1985 and 1990, wherein the market soared up rapidly, with an average daily turnover raising from 5 billion to 44 billion Australian dollars, which is an average annual increase of around 50 per cent approximately. However, there was a momentary standstill in the beginning of the 1990’s as the financial system was being consolidated. After this brief pause, the turnover again picked up the pace from 1992. By the end of 1995, turnover reached around 50 billion on a daily basis which was an average annual increase of 3 per cent.
Multiple factors have contributed to this growth enormously. The specific reason was the de-regulation of the Australian markets due to removal of exchange controls and the floating of the exchange rates during the mid to late 1980s. In the most recent years, Australia became increasingly blended with the global foreign exchange market. It further helped in bridging the time gap between the New York market and the major Asian markets. The average daily turnover in the Australian dollar was around $24 billion in contrast to the third world currency turnover which was around $27 billion Australian dollars on daily basis.
One can witness the less prominence of the market’s turnover in the trading of the currencies for settlement within two business days. In fact transactions in Australian dollars are now little more than half of what was at the peak level in the late 1980s and this reflects the maturing of the market and a thorough decline in the speculative activities pertaining to the market. Swap activity has grown in the Australian market and this has reflected a general trend to greatly use the derivatives in the markets.
The Australian foreign exchange has been a market where, conventionally, a large number of deals were executed by brokers. However, in recent years there has been a deviation in the trading format which is by moving away from brokers. Transacting through brokers has declined to almost 25 per cent of the total turnover as compared to the one-third in the late 1980s. Technological disruption in the shape of electronic deal-matching services is one of the major contributors to this rapid decline.
More than 70 forex traders and dealers operate in the Australian market but there has been a fair concentration in the turnover and have become even more evident over the past few years. The renowned top 10 dealers now generate over 70 per cent of the turnover in comparison to the 60 per cent during the end of the 1980s. The top 10 dealers are the top-notch banks in Australia while the non-banking institutions comprises of half of the total number of forex traders and dealers and their contribution in the turnover is only one-eighth of the market.
