Thursday 9th August 2018
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NZX's rolling maul of initiatives to reinvigorate its core market business will take another step in October, ditching a fixed fee for every transaction and introducing minimum crossing thresholds on the bourse.
The Wellington-based stock market operator has been at pains to boost liquidity on the market as a key strand in a strategic overhaul and has managed to lift the value of transactions going directly through the secondary market to 53.3 percent from 23 percent a decade ago. The latest tranche to a series of initiatives is a new pricing structure and the introduction of a minimum on-market crossing threshold of $50,000. Off-market crossings can go below $50,000 provided they use upgraded technology that can let a broker go to four decimal places, meaning it can offer better terms to both buyers and sellers, and at least one side of the crossing will have to relate to a single party.
Head of markets development and clearing Ben Philips told BusinessDesk that mechanism will mean the client can get the "best possible price" and gives brokers a tool they can offer customers. The stock market operator will monitor the impact of the change, which he said is similar to Australia.
In April NZX took a consultation paper to the market floating the prospect of ensuring crossings outside the formal secondary market were at least $50,000, which it estimated accounted for 5-to-7 percent of off-market trades. A cross is where a broker gets orders from buyers and sellers of the same security and pairs them to execute both orders at the same time.
The stock market operator has wanted to get more trading done on the formal secondary market as opposed to off-market transactions in an effort to improve price transparency. It also derives fees from trading on-market.
Head of policy and general counsel Hamish Macdonald said the move is part of NZX's wider efforts to revive confidence in and activity on the stock market, including new governance policies and align continuous disclosure obligations with ASX, and has the backing of retail investor lobby the New Zealand Shareholders' Association.
A more liquid secondary market is a major attraction for primary market activity, and Macdonald said if it can stoke greater trading activity that "becomes a more attractive proposition for companies thinking about listing".
NZX has skin in the game on this front, generating $5.8 million from securities trading in calendar 2017. Dropping the $1.31 per trade fixed fee and replacing it with a variable or value-based framework has been factored into the company's earnings guidance, and creates an incentive for it to drive greater activity through the market to grow that revenue.
Macdonald said the company will monitor how the policy works in practice and will stay in close contact with market participants through the process.
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