NZX settlement system costs believed to be cost neutral

Wednesday 17th March 2010

Wellington broking firm McDouall Stuart says inadequate future returns and a trend towards increased capital requirements for clearing house participants are behind its decision to resign as a trading and settlement member of NZX.

Managing director Andrew McDouall said media reports, including in BusinessWire, had interpreted an earlier statement from the firm as meaning that "the costs of the new settlement system will increase costs and had been the predominant issue in coming to the decision".

"While the proposed new charging is still being finalised, McDouall Stuart believes that the proposed ongoing operating costs would have been cost neutral to its business," McDouall said.

NZX is close to announcing the implementation of a new clearing and settlement system in which it intends to invest around $10 million. This will allow it to offer derivatives products, initially in the dairy and electricity sectors, and in single stock and local sharemarket indices. NZX member firms have seen proposed pricing on those services in the last few weeks.

In announcing its resignation as a trading and settlement member of NZX on March 15, McDouall said: "The upcoming introduction olf the proposed central clearing system will have a number of capital and operational consequences that, in our opinion, will be likely to reduce the number of clearing participants operating and will commoditise the back office."

In its latest statement, McDouall Stuart says the factors behind its decision included "the inadequate return on the capital required for McDouall Stuart to be a clearing house participant; the trend for capital requirements for clearing house participants (particularly in reference to ASX requirements and the likelihood of New Zealand following this trend); and potential cost saving benefits to the firm".

McDouall Stuart must apply and be accepted by NZX for status as an NZX Advisory Firm.

Businesswire.co.nz

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