Brokers beware - Boo-boo is about to take over

Friday 21st September 2001

While the attention of the nation's media has been focused almost exclusively on the fall-out of last week's terrorist attacks and the plight of our national airline it has been an ideal time to slip a little bad news out into the stream of public life.

So there could have been no better time for Parliament's finance and expenditure select committee to release the results of its deliberations on the future of the New Zealand Stock Exchange.

Without fanfare last Friday the guardians of one of our most important financial institutions e-mailed out their whole-hearted endorsement of the committee's recommendations.

"The exchange said today it was pleased with the progress of the New Zealand Stock Exchange Restructuring Bill," exchange chairman Simon Allen chirped.

"As the new exchange company seeks to improve services to the capital market, the NZSE listing rules ensure a high level of corporate governance, and the independence of the market- surveillance panel, in dealing with matters where the exchange is conflicted, will ensure proper accountability," Allen said, scoring no points for grammar.

As a correspondent for a newspaper that, along with most other papers, has argued long and hard that the NZSE is a sick beast, Shoeshine ought to have been comforted by the announcement the exchange was on a new track.

And the master plan started out innocuously enough.

"The committee reported the bill back to the house today with four key amendments," the release proclaimed.

First up, a change to the qualifying date for exchange membership from August 16, 2000 to February 15, 2001. In itself, not a big worry.

When the exchange earlier this year announced the cut-off date for membership qualification eight newly joined members kicked up a fuss because they reckoned they'd miss out on, by their guesstimate, around $40,000 coming to each of the exchange's 274-odd individual members.

Exchange managing director Bill Foster argued the exchange had to set a date before it could engage the Australian Exchange in the merger talks that have since fallen over.

That another eight brokers will get NZSE shares when the exchange demutualises next year is no big deal. But it's worrying enough that the committee chose to override the exchange's wishes even on this detail.

The punch-lines are the next three sentences.

Amendment two: "a control cap to be set by Order in Council rather than the NZSE."

Amendment three: "exchange rules to be subject to approval by Order in Council, based on a public interest test."

Amendment four: "ability for the government to veto any subsequent rule changes."

What these amount to, Shoeshine's constitutional advisers report, is nothing less than a takeover of the New Zealand Stock Exchange by the government.

An Order in Council is essentially a mechanism by which governments by-pass the democratic parliamentary system.

The NZSE Demutualisation Bill is going through the democratic process.

Draft legislation is submitted to the appropriate committee. Members of the public, and groups that consider they have an interest in the bill's outcome, are invited to make submissions about what they want the law to dictate.

The committee - informed, theoretically, by the legitimate wishes of those whom the draft legislation will affect - then makes amendments and passes the bill on to Parliament for enactment.

The rule-setting process stands in contrast to the Order in Council model. Under this process government ministers simply decide what the rules should be. They pass those rules up to the Governor-General for rubber stamping and, voila, the law of the land is made.

No select committee process; no public submissions; no reading or debate in the House.

As the Stock Exchange has, in public at least, no objection to the amended bill it will presumably become law some time later this year.

So Helen Clark's cabinet, rather than the exchange's board, its members, or, some time next year, its shareholders will decide how much of the company any one shareholder can own.

The cabinet will approve, or veto, the exchange's rules for companies that are listed, or want to be listed, on the exchange's boards - and the rules under which sharebrokers will have to operate.

And it will have unfettered power - by Order in Council - to veto, presumably without any reason given, any changes the demutualised exchange may consider necessary to any of the rules the cabinet has set.

This leaves the exchange's long-time critics - that is, almost anyone who has ever given these matters a moment's thought - in something of a quandary.

Few any longer have an ounce of faith in the exchange's board and management or in their laughable market- surveillance panel.

But consider the blood-curdling prospect that cabinet flakes such as economic Neanderthal Jim Anderton and Marian "Boo-boo" Hobbs will be in a position to write our Stock Exchange's listing rules.

It makes the Foster and Allen show look like a class act.

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