Tuesday 16th January 2018
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The NZX received 70-odd submissions on proposed changes to stock market listing rules and while most back simplifying the rules, they were divided on a proposal to incorporate differential requirements for equity issuers.
Last September, the Wellington-based stock market operator released a discussion document with its preferred route of action, dropping the small-cap NZAX and NXT markets and introducing greater flexibility around disclosure on the main board.
Among other things, the new rules seek to implement differential standards for equity issuers. According to the NZX, given the large proportion of smaller to medium-sized companies currently listed on NZX, the significant number of private SMEs, and the trends globally for fewer companies to seek to list, it is necessary to ensure appropriate settings for SMEs to develop the market.
NZX's preference is for a single equity market and set of rules, with varying standards for smaller equity issuers. The discussion document referred to companies subject to the more flexible standards as “Standard Issuers” and companies subject to the higher standards as “Premium Issuers.”
A draft of the proposed rules based on the initial feedback is targeted for release in April 2018. Interested parties will have further opportunity to provide feedback before the proposed rule changes are submitted to the Financial Markets Authority for approval. The aim is to implement the updated rules by the fourth quarter, the NZX said.
ANZ Bank New Zealand supports the aim to simplify and improve the clarity of the listing rules and the proposal to "reduce the current complexity of NZX's three separate markets and rule sets for equity issuers by having differential standards for equity issuers within a single market and rule set," it said in its submission. The country's biggest lender is of the view differential standards should increase new equity issuance on the NZX.
Industry lobby Business New Zealand said it strongly endorses moves to reduce the current regime’s complexity, together with the removal of unnecessary compliance costs. It notes, however, "we do not believe NZX has identified the key barriers to listing, nor provided supporting evidence that the listing rules themselves are a key problem." It called on the NZX to conduct a "root and branch evaluation" of the barriers of an initial public offering by SMEs – and clearly relate these to each of the proposed listing rule changes.
The New Zealand Superannuation Fund also recommended NZX conduct a detailed analysis of the barriers and solutions to small and medium-sized enterprises listing on the NZX and clearly relate these to any proposed changes.
The Super Fund, one of the biggest investors on the local bourse, was less supportive of a single set of rules with consistent standards for all equity issuers. "While superficially this appears to be the easiest to understand, in reality, it would not cater for the significant business differences, particularly business size," it said.
Chorus supported the proposed simplification and reduction in compliance costs. Regarding a single set of rules with differential standards for equity issuers, it said it agreed but noted it is important that the threshold for becoming a "premium" issuer is clear and that companies on the cusp of that threshold have some level of control over whether they are premium or not to avoid uncertainty.
For its part, Infratil also backed NZX delivering an updated market structure via a single rule set but questioned whether differential standards for equity issuers is necessary or desirable. It risks "introducing a different type of complexity to replace the complexity currently delivered via the three separate markets and rule sets." Rather it would prefer a solution that removes or reduces complexity wherever possible and standardises the treatment of listed equity issuers.
Spark New Zealand questioned whether there will be sufficient differential requirements to warrant differential standards and said differential standards could be problematic from a practical perspective in terms of how the eligibility test would be applied. "These (and other) practical issues are likely to result in a continued level of complexity which the review is seeking to reduce," it said.
The New Zealand Shareholders' Association, which represents retail investors, said the lack of success with the NXT and NZAX markets, combined with the size of the market, meant a single set of rules without differential standards was a better option. "The proposed differences are minimal and in our view will simply confuse both issuers and investors, especially in relation to companies that may be on the cusp of a change from one set of standards to another."
Law firm Chapman Tripp pointed to three risks having different listing categories. It noted investors will find the distinction between the two categories confusing and avoid investing entirely or will not understand the difference. It said most of the issuers currently on the NZX Main Board would want to be “premium issuers” as it expects that “standard issuers” will be seen as second class by investors (whether or not any particular issuer is well governed or not), as the proposed branding is unduly negative. Finally, creating two listing categories may divide issuers, similar to the current three equity market structure.
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