Demutualise yes, merge no, as brokers push the third option

Friday 19th January 2001

There is an alternative, reports NICHOLAS BRYANT

Brokers who oppose a merger of the Australasian stock exchanges say the NZSE board knows it doesn't and won't have the numbers for a merger with Australia.

The board would need 75% of its 274 individual members and 40 member firms to vote in favour for a merger to go ahead.

Brokers close to merger discussions, but against a merger, claim the NZSE is working on a dignified retreat from the issue after new chairman Simon Allen vocally promoted it.

Mr Allen said he wasn't going to add to speculation until the workstreams were completed and all the issues adequately studied.

"By far the vast majority of members are not approaching it from an ideological point of view but from a practical point of view and they will wait until they see what, if anything, comes forward," Mr Allen said.

Many members are undecided over the merits of a merger but appear to be swaying against it as a result of a lack of detail being disclosed to them.

Two options have been put forward by the NZSE for the future of our ailing stockmarket: do nothing or merge with Australia.

But many influential sharebrokers want a third option canvassed: a standalone, demutualised exchange with a new, more professional, incentive-based management.

The brokers say the local market should follow the recent actions of its Australian equivalent. That would mean demutualising, listing on the main board of the NZSE but having no formal alignment with the ASX.

It would leave the NZSE in a position to move rapidly into any trading alliance that may emerge in the years to come.

Along with such a move would come higher trading costs, something the NZSE's present management has pointed out would occur with any change to the status quo.

But according to one of those floating the third option for consideration, J B Were & Son's manager of private stockbroking, John Cobb, the increased costs would bring increased rewards.

He said investors wanted a greater level of confidence and security, especially for the mostly unchecked or investigated area of insider trading.

"My personal view is investors would be happy to pay two or three times the cost of trades for two or three times the success in their stocks, something they routinely get on the ASX," Mr Cobb said.

Also of value to the local investor was the knowledge that much of the money invested in the listed Stock Exchange entity would be reinvested for the betterment of the local market.

Mr Allen said that was essentially the proposed model of a demutualised exchange going forward, though listing the demutualised entity had not been considered.

Currently the NZSE sees it as the role of members to promote equities as a form of investment and the role of other authorities to police those markets.

"Both jobs would be better done by a centralised body with a professional, full-time management.

"You can't blame the current board really. Most of them are CEOs of their own businesses so have little time to manage ... it's like a voluntary organisation," Mr Cobb said.

Since July last year the Australian Securities and Investment Commission has sent 36 people to jail, banned 57 investment advisers from practising, 20 of them for life, and banned 47 people from managing a company.

Despite dealing with fewer companies, last year this country's market authorities, the Securities Commission and the Stock Exchange Surveillance Panel, issued a few minor fines, no public censures and some private censures to listed companies when insider trading and creative accounting were suspected on numerous occasions.

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