How to buy and sell shares

Investors' buy and sell orders are entered into the ASX Integrated Trading System (ITS).

The orders are entered by licensed operators within stockbroking firms using ITS terminals located in their offices. ITS matches buying and selling requests by price in the order they were entered into the system. Every order is processed on an equal basis, and larger investors do not gain priority. When a buy order is matched with a sell order a trade occurs.

Placing an order with your adviser

Most stockbroking firms require you to provide funds before they accept your first order to buy shares. Many brokers will require that you set up a client account or trading account before you can start trading. This can take up to a week to finalise but can usually be done in 24 hours. Many brokers will require you to establish a cash management account with a bank or financial institution, to which they have access. This is to facilitate the transfer of funds to pay for your purchase of shares and to allocate proceeds to you from the sales of shares.

When you place an order to buy or sell shares, you have a choice of two ways to tell your adviser what price you will accept. You can place your order 'at market', meaning you will accept a price at or about the market price of the shares at the time you place your order. Alternatively, you can place your order 'at limit', and inform your adviser of the highest price you are prepared to pay or the lowest price at which you will sell.

When placing an order with your adviser, make sure your order is confirmed. Ask for the current market price and write it down. Then tell your adviser the details of your order (i.e. the amount of shares to be bought or sold and the price at limit or at market). The adviser should then repeat the order back to you.

Your adviser will not necessarily call you as soon as your order has been filled. However, if you place an order very near the current market price, it may be filled quickly. If you change your mind about the order after it has already been filled, you are still bound to pay for the shares you have bought, or release the shares you have sold, even if you have not yet received the contract note.

Paying and settling

Within three days of your broker executing your order you will need to enable the transfer of these shares, either by organising payment for the stock you have purchased, or by providing access to the shares you have sold.

All shareholdings are registered electronically on either CHESS or the issuer sponsored sub-register. CHESS (the Clearing House Electronic Sub-register System) is operated by a subsidiary of ASX on behalf of the listed companies. Issuer sponsorship involves the company (or issuer) through which the shares are issued, controlling the shareholding on your behalf.

To hold shares electronically on CHESS, you usually enter into an arrangement with your broking firm to act as your CHESS sponsor. The CHESS sponsor can then electronically register details of any purchases or sales.

More detailed information on CHESS is covered in the ASX Starting in the sharemarket class.

The mechanics of how you settle your transactions depend upon where your shares are registered. If you have sold shares held on the CHESS sub-register you will need to provide your broker with your holder identification number (HIN) to allow access to transfer the shares for settlement. If sold shares are held with an issuer sponsored company, you will need to provide your broker with your Security-holder Reference Number (SRN) to allow access.

The following tool can be used to test your knowledge of how shares are brought and sold.