• About
• Publications
• Exemptions
• Notices
• What's new?
• International
• Speeches
• Information for investors
• Contact us
• Site map
• Home

OVERSIGHT REVIEW OF NZX 2006

THE NZAX MARKET

Review of the NZAX

29. During the review period NZX undertook its own review of the NZAX market. The NZAX market is designed to provide an alternative market for smaller Issuers. Accordingly, it incorporates a number of changes from the structure, rules and trading environment of the NZSX.
30. NZX consulted with a wide range of stakeholders including NZAX Issuers, Sponsors, Market Participants and Advisors, in relation to the performance and design of the NZAX market. NZX received a good level of feedback to its review, and a number of outcomes were identified. NZX reported on the outcomes as follows:
    1. few NZAX Issuers had a clear understanding of the distinction between the NZAX and NZSX rule structures and how those differences can be used to better meet the business objectives of the NZAX Issuer. This was identified as a problem stemming in part from lack of information dissemination by the Sponsor network and NZX, and the present rule set;
    2. stakeholders more generally, including legal advisors, did not have a good understanding of the differences introduced by the NZAX structure and rules;
    3. many stakeholders did not believe the Sponsor concept had broadened the number of organisations bringing companies to market, despite the significant number of organisations who had been approved as Sponsors;
    4. the NZAX trading microstructure was not considered to have provided the desired improvement in the underlying liquidity in the NZAX market;
    5. stakeholders were satisfied with the foundation of the NZAX Listing Rules, being continuous disclosure and governance requirements, and raising capital in the NZAX market is widely viewed as efficient and cost-effective;
    6. the majority of stakeholders considered the NZAX market lacked profile after an enthusiastic launch.
31. Following this review, NZX developed a number of initiatives to address the issues arising from the review. It reported these to the market in a release dated 31 August 2006. The trading structure of the NZAX was proposed to be changed to be in line with the NZSX, and changes to the 'tick size', or the minimum amount that the price of a share on the market can change, and an extension to trading hours were effected on 2 October 2006. The removal of the anonymous call auction became effective on 19 March 2007.
32. The Sponsor network was identified as containing a high proportion of effectively inactive Sponsors. NZX held seminars for Sponsors to better educate them on the special nature of the NZAX and has said it intends to review the number of Sponsors.
33. NZX also identified that although stakeholders were of the impression that the NZAX Listing Rules were virtually indistinguishable from the NZSX Listing Rules, in fact the issue appeared to be the level of understanding of the differences. NZX has undertaken an education initiative to further explain the differences between the Listing Rules. NZX has sought to amend the NZAX Listing Rules to reflect the format of the NZSX Listing Rules, so that the differences between the Listing Rules are more easily identified. These amendments came into effect on 1 March 2007. NZX has also formulated an ongoing plan to improve the profile of the NZAX market.
34. The Commission is pleased that NZX undertook a review of the NZAX and is endeavouring to distribute more information about the NZAX and raise its profile. The Commission is concerned that there may be an element of misunderstanding about the NZAX Listing Rules and the effect of those Listing Rules and that this has been entrenched during the period since the NZAX was created. The Commission notes that the NZAX faces pressure due to the ability of unregistered exchanges to operate in New Zealand.

Standards applied to the NZAX market

35. We reviewed several files in which NZAX Issuers made applications under the Listing Rules. The Commission noted that although the requirements under the NZAX Listing Rules are somewhat less demanding than those under the NZSX Listing Rules, the Market Supervision team applied the correct processes and reviewed documentation with the same level of rigour. The Commission is pleased to see that NZX makes the same effort to enforce the NZAX Listing Rules despite the smaller size of the market

Recommendations

36. The Commission does not have any recommendations in this area. The Commission is satisfied that NZX is applying rigorous regulatory standards to the NZAX despite its smaller size and less demanding Listing Rules. However, the Commission is concerned that the lack of understanding about the lower-cost NZAX regime may disadvantage the NZAX in market competition with other sources of capital, such as unregistered exchanges and private equity. The Commission considers that education of Sponsors and NZAX Issuers as to the regulatory differences between the NZAX and the NZSX should be a priority for NZX. The Commission anticipates that the recently commenced education programme will help to achieve this. The Commission is concerned that there may be an element of misunderstanding about the NZAX Listing Rules and the effect of those Listing Rules and that this has been entrenched since the NZAX was created. The Commission is pleased that NZX has undertaken the review of the NZAX market and supports the actions it has taken to address the issues which were identified out of that review.