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Hybrid option mooted for NZSE

By Ray Lilley

Friday 7th July 2000

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CAUTION: Eion Edgar emphasises a merger will have little impact on share prices
An Australasian "open access" stock market for larger companies could emerge as the preferred option for reshaping the local market to face the challenges of the next 10 years, outgoing Stock Exchange chairman Eion Edgar hinted this week.

The scheme would allow larger company stocks to be listed on a wider electronic platform, with trades settled on their home exchange.

Smaller capital stocks would continue their secondary board listings and trade on their national exchange. Stocks on the New Capital Market (NCM) would also remain listed on the separate national exchange.

This hybrid option could help hold trading costs for New Zealand investors, who enjoy significantly lower settlement costs compared with those in Australia.

Options ranging from a full merger to doing nothing are being studied by UBS Warburg consultant Jon Cimino. The Stock Exchange's board hopes to have formal recommendations to put to the annual meeting on September 13.

NZSE chief executive Bill Foster said while the different regulatory environments presented few problems for major companies, the "black hat" law that controlled the Australian equity market and significant differences in broker licensing and other areas would have to be resolved.

"The difference for investors is not significant but there are differences for professionals like brokers and lawyers, tax differences and company law differences.

"Providing a common platform is in everybody's interests, provided it's not too complex," Mr Foster said.

An open access electronic trading platform would expand the working alliance between the two markets.

Although there was a more common culture between New Zealand and Australia than between merging European exchanges Frankfurt and London, "little exchanges don't get lower costs" out of mergers.

Trades cost 60c to settle in New Zealand but $2-$15 in Australia.

Both men criticised the high costs of the Australian exchange and pointed to the efficiency of the NZSE's 25 staff compared with the 500 of the Australian operation. Mr Edgar offered to help reshape the ASX's cost structure.

Cavell White Securities director Don Turkington said the hybrid "open access" option offered investors, companies and traders a larger platform.

He believes major technology changes mean the do nothing option adopted by the NZSE in 1997 is unlikely to be repeated.

The "joint platform has appeal because the smaller cap[ital] New Zealand companies would disappear in a bigger market. With the New Zealand exchange still an [independent] entity, [it] could mean there would be more interest in the small cappers," Mr Turkington said.

Mr Edgar cautioned that a merger would have little impact on the values of NZSE-listed companies. Fundamentals didn't change if the structure of the Stock Exchange altered.

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