Australia Financial Markets Guide covers the main participants, products and markets in the Australian financial system, with specific emphasis on debt and equity markets. This material is designed to provide a foundation of knowledge for new starters in the industry.
Australia has one of the most vibrant and active global money markets, a vital source of short-term funding for businesses. Understanding its dynamics and intricacies is essential for investors, policymakers and financial professionals.
Australia Financial Markets Guide for New Investors
The money market is dominated by banks, with non-bank financial institutions (e.g., money market funds) and government entities also participating actively. The Reserve Bank of Australia (RBA) influences the money market by setting the official cash rate, which affects interest rates throughout the economy and thus the cost of borrowing and lending. It also conducts open market operations (OMOs) to manage liquidity, by buying or selling securities.
The Australian debt market comprises the Commonwealth, State and Territory government securities and corporate bonds. The Commonwealth Government Securities (CGS) account for around three-quarters of the $155 billion of fixed coupon bonds outstanding, followed by CGS issued by States/Territories and non-government corporations. An increasing number of corporations issue debt in order to meet financing needs and diversify away from bank loans and other short-term debt. In addition, a growing market for swaps enabling institutions to shift between fixed and floating-rate exposure has contributed to total market turnover of around $1,000 billion (Chart 12). The RBA regulates these markets. Its key functions include monetary policy, payment systems and financial stability. The Australian Securities and Investments Commission (ASIC) oversees disclosure and market conduct, licenses providers of financial services and supervises real-time trading on Australian markets. The Australian Prudential Regulation Authority (APRA) supervises authorised deposit-taking institutions and the wider financial services industry and is a member of the Council of Financial Regulators with ASIC and the RBA.