Friday 1st September 2000
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WHO GETS WHAT?
EION EDGAR: Stepping down
'Do the individuals go to bat for the firm, which will end up getting all the money, or for themselves as individual members?'
How the Stock Exchange pie will be carved up is dividing the sharebroking industry.
NICK STRIDE investigates
A behind-the-scenes battle is brewing as sharebrokers ponder the ownership of the New Zealand Stock Exchange ahead of a possible share handout.
The Australian and New Zealand exchanges announced on August 14 they were investigating a merger that would give them greater weight as electronic cross-border share trading threatened exchanges' traditional fiefdoms.
While the Australian Stock Exchange is a public company whose shares are traded on its own exchange, the NZSE would have to be demutualised, meaning its members would be given individual tradeable ownership rights.
The NZSE is seeking legal advice on how those ownership rights might be allocated and sharebrokers say there are plenty of danger areas for conflict.
The exchange was established as a "national corporate body" in 1981 by the Sharebrokers Amendment Act. In essence it is a mutual society.
Although the act is silent on ownership, it is widely assumed it is owned by 41 corporate members and 279 full individual members who are employees of the member firms. Around 140 associate members have no ownership or voting rights.
Brokers are wary about talking publicly on ownership issues, saying the exchange is sensitive about the subject and could impose disciplinary action on those who speak out of turn.
But they say there are likely to be arguments over the formula used for allocating shares. Heavyweight firms such as JB Were, Ord Minnett, UBS Warburg and ABN Amro were likely to push for shares to be allocated in proportion to the volume or value of business each member firm brings to the exchange.
"I can see there's going to be a battle," one broker said. "People will say, 'We turn over more than you do; therefore, we should get more than you."
Unsurprisingly, smaller brokers favour the Australian model.
ASX members voted overwhelmingly to demutualise in October 1996 but it took two years to list the shares.
The basis was one vote, and one equal parcel of shares, for each member firm and for each individual member. The 606 members got 166,000 shares each.
On the first day of trading the shares closed at $A4.10, valuing the exchange at $410 million ($539 million) and each member's parcel at $A681,000 ($895,000).
The process was not without animosity. Reports of members' windfalls prompted threats of legal action from brokers denied membership in the run-up to the 1996 vote.
In 1999 the NZSE's turnover was 652,645 trades of 10.1 billion shares worth $26.9 billion.
A recent "guesstimate" by the Australian Financial Review put the listing value of the NZSE at $A50 million ($66 million). On that basis, and assuming an equal number of shares for each member, members would get allocations worth about $200,000 each.
Brokers point out that, while the cards might seem to be stacked in the big firms' favour when deciding the basis for share allocation, their own employees' self-interest inclines toward the Australian model.
"A big firm like Credit Suisse First Boston has, say, 24 individual members," one said. "Do the individuals go to bat for the firm, which will end up getting all the money, or for themselves as individual members?"
The NZSE has already closed the gates to new members. A letter dated August 22 advised members any new applications for full membership would be deferred.
The exchange has said it saw demutualisation as a necessary part of any merger process but denied reports it would pursue that course regardless of the outcome of the ASX talks.
If a demutualisation and merger go ahead, members are likely to be issued ASX shares in consideration for their exchange ownership rights.
Preliminary shots could be fired at the NZSE's annual meeting on September 13. Chairman Eion Edgar is stepping down and his likely replacement is ABN Amro managing director Simon Allen.
Two candidates from smaller broking firms, Noelene Munro of Greenslades and Nigel Wynn of Direct Broking, are seeking board seats.
"Things are tense," one broker said. "The industry isn't making a lot of money right now."
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