Tuesday 10th September 2019
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The report from the capital markets review committee has a comprehensive set of recommendations covering broad aspects of markets from regulatory settings through to market structure and technology, says NZX chief executive Mark Peterson.
“The nice thing is that it’s a collection of recommendations for all of us, not just some of us. Certainly, from NZX’s point of view, we will build these recommendations into our delivery plans for the next couple of years,” Peterson told BusinessDesk.
“We think the report's a fantastic piece of work and we welcome it strongly.”
The report’s 42 recommendations range from the tax treatment of KiwiSaver funds, saying that contributions shouldn’t be taxed, only withdrawals, to getting rid of the requirement to include financial forecasts in offer documents.
It also recommends financial literacy courses for NCEA students at high school and getting rid of the need for the Overseas Investment Office to get involved in public company's transactions so long as no single overseas investor owns more than 25 percent of the firm.
Peterson says the report's suggestions about increasing investor access to council and Crown infrastructure projects are particularly useful.
“We know there’s an infrastructure deficit in New Zealand and we know there’s money available to invest,” he says.
Making it possible for public markets and the government to come together on such projects would also be a good thing.
“Hopefully, everyone will view these recommendations as logical, sensible and constructive.”
Peterson says NZX will have a more comprehensive response in a couple of weeks after it has had time to properly digest the recommendations.
New Zealand Shareholders’ Association chair Tony Mitchell says he’s still digesting the report, but he praises a number of the recommendations.
“It seems to be fairly wide-ranging and broad – I’m still looking for the real teeth that are going to be the game changers,” Mitchell says.
Among recommendations he singles out for praise include those aimed at making KiwiSaver more flexible and encouraging KiwiSaver members to make more active investment choices.
And he’d like to see improvements to the tax treatment of investment, particularly more tax benefits for investors along similar lines to such incentives in Australia.
Financial Markets Authority chief executive Rob Everett wasn’t available to comment but said in a statement that he would be considering the recommendations carefully.
“We hope this will galvanise industry to consider the best ways to increase the depth and resilience of our capital markets for investors and issuers and the broader well-being of New Zealanders.”
Review chair Martin Stearne acknowledges that many of his committee’s recommendations will require government action to implement.
“Most changes of this nature do require political agreement.”
In particular, ceasing to tax KiwiSaver contributions and only taxing the funds once they’re withdrawn would leave a hole in the government’s accounts.
Currently, contributions from both members and employers are taxed, as are investment returns, while withdrawals from KiwiSaver are tax-free.
Stearne says the lack of new listings on NZX is “more of a supply issue,” rather than there being any lack of demand from investors, as the recent over-subscribed float of Napier Port demonstrated.
“It’s incumbent on the industry as well to act on these changes and recommendations and some of the observations we’ve made.”
The report has a number of recommendations on the regulatory front, including simplified disclosure requirements for initial public offerings, scrapping the need for such offers to contain financial forecasts and scrapping of penalties directors face under the continuous disclosure rules.
Financial forecasts aren’t required in most jurisdictions around the world, with the exception of Australia and New Zealand, Stearne says.
Preparing such forecasts “is quite an expensive exercise. It has been raised by some, particularly smaller companies, as a barrier to listing,” he says.
“We would expect the larger more established companies would still provide financial forecasts” and when companies didn’t provide them, the market would probably take that into account in how the shares were priced, perhaps pricing them at a discount.
“We’re not stepping out of line with other major global regimes – it’s a bit of tweaking,” Stearne says.
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