NZX spring cleans its rule book, market structure

Tuesday 30th October 2018

In the stock market equivalent of a satisfying fridge clean-out, the NZX today announced it has “refreshed” its market structure and updated its listing rules.

The new rules are the first rewrite for 15 years and are being touted by the NZX as shorter, less complex, more user-friendly and written in plain English. They dispense with references to fax, telex or the word “forthwith” and have taken a year to draft.

The revised market structure coincides with a previously-announced move to a single equity market, getting rid of the failing NXT and AX small-cap company boards and moving all listings to the main NZX board.

As a sweetener to smaller companies, the listing eligibility rules have been relaxed. Instead of needing 500 members of the public to be holding at least 25 percent of the securities for a company to list - the so-called ‘spread’ and ‘free-float’ requirements - the new rules require only 100 unaffiliated investors holding 20 percent of the stock.

This new spread figure is considerably easier than the 300 holders proposed in the consultation document released in April.

The minimum market capitalisation, intended to make sure companies are big enough and have sufficient investor support to list, has gone up from $5 million to $10 million, but is down from the $15 million in the April draft.

Other moves designed to reduce costs and encourage participation include removing the requirement for companies to get their constitutions approved by NZX Regulation, and dropping the need for all listed firms to produce a separate half-year report on top of their annual reports.

The NZX has simplified the rules around overseas companies listing on the exchange, and extended the foreign exempt regime to include companies which are incorporated in New Zealand but listed overseas.

It has also dropped all spread and free-float requirements for debt issuers, introduced a framework for listing wholesale debt, and brought in tailored requirements for managed funds wanting to list, a move the exchange hopes “will significantly reduce compliance costs for these issuers”.

“There are currently a relatively small proportion of listed funds on NZX’s main board,” the exchange said in an explanatory paper. “This is an area of the listed market which is underdeveloped compared to global peers and presents a strong opportunity for market development.”

While the exchange is clearly hoping more straightforward, cheaper processes will encourage new listings on the market, on the equity side as well as with debt issuers and managed funds, it is steering well clear of any predictions.

“Tinkering with rule settings is not going to magic up 20 extra listings a year, much as we would love it to,” NZX general counsel and head of policy Hamish Macdonald told BusinessDesk. “There’s a lot more that goes into whether someone lists than the NZX processes.”

However, the complexity around the old rules wasn’t justified, Macdonald says. The old rules framework had a combined 345 pages, plus appendices. That’s now reduced to 81, and even the appendices are simpler.

“We hope this will make a positive contribution towards that dynamic around listing”.

Macdonald says the debt market has been particularly buoyant this year, with 21 issues and $3.4 billion raised so far.

“We are encouraged by the current momentum and hope by removing unnecessary compliance costs and improving speed to market we will encourage that.

“We are also encouraged by the conversations we are having with funds and we are confident the new fit-for-purpose rules should make it considerably cheaper for these companies to use the NZX to list their products.”

The NZX has also taken the opportunity of its spring clean to tighten up its rules around reverse and backdoor listings - when a listed company without any existing business buys a private company in order to list the combined group.

“We propose to treat such transactions as new listings to ensure an appropriate listing process is followed,” the explanatory paper says.

“We have also developed updated guidance to confirm that issuers may be suspended from trading pending release of sufficient information on the target company.”

To support the updated rules, the NZX is producing new guidance notes and forms, which it is intending to publish on Nov. 30. The amended rules will take effect on Jan. 1 and all companies wanting to be on the expanded main board, including those listed on the NXT and AX, have to have transitioned to the new rules by June 30.

(BusinessDesk)

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