Sharebroking and investments: A demutualised exchange will promote NZ Inc

By Bill Foster

Friday 22nd March 2002

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Bill Foster

The New Zealand Stock Exchange of 2002 bears little resemblance to that of 20 years ago.

In 1981 the NZSE admitted its first woman member.

Today 16% of members are women, comprising 8% of full members and 32% of associate members.

Before 1991 the exchange had three trading floors and only a basic computer system.

In 1990 it transacted $3.5 billion annually at a cost of $15 per trade, with most settlements taking 30 days.

Today the exchange has a fully electronic trading platform transacting seven times the volume of 1990, at about $25 billion, with charges of less than $3 a trade and settlement of trades between members averaging three-quarters of a day.

Much of that change has been driven internally in recognition that the world is changing and for the capital market to survive and prosper - the exchange must look at what is happening in business and adjust accordingly.

To put the progress into an international context, the exchange is the eighth smallest member of the World Federation of Exchanges but last year it was the ninth best performer but operates on the lowest costs and is probably the most efficient.

Those statistics illustrate a dramatic change over the past two decades in attitudes within the exchange and the key dynamics that drive the New Zealand market: namely, the need for constant progress and ever improving performance.

Another significant shift for the exchange is the drive for greater qualification and professionalism.

The process of becoming a member is complex. Associates, for example, must pass prescribed examinations and must have a further two- and-a-half years' experience before they can become full members.

Recently the exchange introduced new regulations that have extensive rules for members' and employees' conduct, designed to protect both investors and those in the industry.

But if the changes of the past 20 years still seem impressive, the next year holds more significant change for the exchange.

This year the exchange hopes to demutualise - that is, become a corporate and commercial entity owned by public investors, as opposed to the current mutual structure, which requires benefits to be returned primarily to members in practical terms, such as low transaction costs, but does not provide an adequate mandate for growing the business.

Once this is achieved, and the exchange lists on itself to become a public company, its ability to operate on a commercial, forward-focused basis will be greatly enhanced.

This will help drive its commitment to increasingly promote the New Zealand capital market both in New Zealand and internationally.

Competitive threats such as the desire of the Australian Stock Exchange to encourage New Zealand companies to migrate their primary listings to Australia will further sharpen the exchange's focus.

Regulatory changes being made in conjunction with exchange demutualisation are aimed at strengthening investor protection, enforcement and disclosure requirements.

These changes have been designed to enhance our regulatory reputation while preserving the integrity and the unique and efficient operation of New Zealand's capital markets so New Zealand will be clearly visible as a preferred market for both domestic and international investors.

Bill Foster is the managing director of the New Zealand Stock Exchange

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