Written by Heidi Gaussen, Principal Analyst, ASX
The Australian Securities Exchange (ASX) is currently undertaking a review of its market for Mid-Cap, Small-Cap and Micro-Cap securities. There is a particular focus on meeting the needs of Australia’s many listed resource-sector companies.
Around 900 of the 2,247 listed companies on ASX as at 30 June 2011 are from the metals, mining and energy sector, with most based in Western Australia. A large proportion of these companies are modestly-sized.
The Australian equity market has a history of supporting emerging industrial companies and mineral exploration ventures. It’s needed to. Australian banks don’t typically extend finance for non-mortgage backed and speculative ventures, and there is a lower level of venture capital in Australia than in the US (although this disparity has reduced due to the impact of the global financial crisis in the US). As a result of these factors and Australia’s many mineral and resource deposits, ASX is home to a large number of mining and oil and gas exploration and production companies who seek an ASX listing to raise vital capital.
The top 5 per cent of companies listed on ASX represent 80 per cent of market total market capitalisation. Companies capitalised under $100 million, generally regarded as small caps, represent 70 per cent of companies by number, but total only 2.5 per cent of market capitalisation. They make up a large and critical part of ASX’s customer base. And represent attractive opportunities for investors.
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Richard Murphy, General Manager Equity Markets, said: “The model for small listed companies in Australia is a good one, but it is based on a ‘one-size-fits-all’ approach, where listing and trading rules are the same for all companies. It is important that we keep testing that model and, where needed, improve it to meet the evolving needs of small companies and keep ASX and Australia at the forefront of the very competitive global market for company listings. ASX is working hard, via initiatives such as the SME review, to improve liquidity, price discovery and access to capital for ASX listed standards.”
ASX is currently considering feedback to the review from market users. In late 2011, ASX will release details of proposed reforms for public comment. Murphy hopes to start implementing changes in 2012.