NZX ploughs forward

By Duncan Bridgeman

Thursday 8th April 2004

After an action-packed 12 months Stock Exchange chief executive Mark Weldon is not about to take his foot off the accelerator.

"I always like things to happen sooner rather than later," he said, as the share broking community grapples with the new-look NZX, "although there might be some in the market who wish we were slowing down a bit."

Indeed, after implementing a raft of changes since listing on its own board last June, Mr Weldon and the NZX have garnered a few critics.

This week a study by Deloitte corporate finance analyst Megan Goldfinch argued that a mandatory requirement for companies to have independent directors, introduced by the NZX last year, could have a negative effect on their performance.

The study, which appears in the latest edition of the University of Auckland's Business Review magazine, is not something Mr Weldon takes seriously.

"Her conclusion is that there is no evidence that [independent directors] are strongly positive. An equal conclusion would be there is no evidence that it's strongly negative," he said

There are also grumbles from some sharebrokers over the increased costs they are facing since the NZX listed. In some instances, broker fees have increased up to 100% taking into account further compliance costs driven by the new rules.

Of course, a lot has happened over the last year and as a publicly listed company, the NZX is obliged to maximise returns for its shareholders.

Most sharebrokers are happy to accept the higher fees as long as the benefits flow through. Inevitably the costs will be passed on to their customers, as in Australia.

"None of us likes to see fees go up but the NZX is now charged with making a commercial return and if that means as brokers we have to look at ways of making some cost recoveries, then so be it," ASB Securities managing director Tim Preston said.

Forsyth Barr head of retail Shane Edmond, who is also a director of the major shareholder in the NZX, said there was always going to be some backlash among the broking community but mostly the industry had accepted the increases.

"I think change always causes some people to get offside. Mark has not been adverse to getting on and making the changes and along the way there's no doubt that some people aren't necessarily in support of those.

"Unfortunately, the brokers can't fully pass those costs on until the exchange markets the fact that these are in fact additional costs."

Mr Weldon said there had been no fee increase since 1991 so a re-weighting was in order. The increases stemmed from several different areas of the exchange's business.

Trading fees had gone up from 60c to $1 but they had not been raised for more than 10 years, he said. The exchange had also increased order fees by 10c, which was significant, given there is an average of three orders to every trade executed.

The other main costs for brokers are the increase in compliance costs.

Mr Weldon admitted there was a mixed view in the market on this particularly from the smaller broker groups.

"[But] some of the larger groups say they see compliance and safety as a competitive advantage and see no problem with it at all."

Others say the people complaining are those who sold their NZX shares at $3.50 when they are now more than $8. They were now paying the extra costs but not enjoying the upside of the company's performance.

Broking firms and members of the Australian Stock Exchange pay up to 150% more than their Kiwi counterparts, according to brokers here.

However, Mr Weldon said he anticipated always remaining below the ASX in terms of the fees charged.

The NZX could not have hoped for better trading conditions in its first year as a listed company.

The NZSX50 gained 34% for the 12 months to the end of March or 22.5% under the previous NZSE40 benchmark index.

Mr Weldon said this was underpinned by a general rise in confidence and an increase in the number of retail investors returning to the market.

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