The O'Brien Column: Exchange now has PR advisers but it's hard to spot difference

Friday 16th February 2001

The Stock Exchange market surveillance panel's weird waiver of the rules in the Montana affair should have turned around the issue of whether the New Zealand exchange should merge with its Australian counterpart.

Australian brokers should be asking why their exchange should merge with New Zealand's given the latter's history of acting as naïve, bumbling country cousins at best and arrogant overseers of a minuscule equity market at worst.

Both those attributes have been features of the exchange for at least 40 years (probably longer, but it is inappropriate to comment on matters happening before one's time).

Before exchange officials leap to The National Business Review's letter columns they should reflect on whether the exchange has introduced any reform, at least since the early 1960's, that was not forced on it by public opinion, threat of legislative action, market excesses or a combination of the lot.

An interesting comparison can be made between the Montana affair and another recent overseeing action of the exchange through its market surveillance panel.

The panel sends letters to companies querying movements in share prices when the latter move up or down quickly in a short period and in the absence of new information about the company's affairs.

That bit "in absence of " and so on was relevant to a notice sent on February 1 to listed company Scott Technology.

Panel secretary Phillipe Leloir noted the company's share price was quoted at $1.70 on February 1, a decrease of 40c a share since January 25 (note that date; it was relevant to what happened next).

The usual four-fold query was made, regarding the company having undisclosed information about its affairs, any suspicions that someone bought or sold shares on the basis of such information, any important matters about to be announced that could be announced immediately and had anyone connected with the company made any public statement which could account for the price fluctuation?

Scott Technology said no to the first three queries. Its response to the fourth could lead outsiders to the conclusion the exchange should check its records before firing off letters.

Scott said: "On January 25, 2001, the company made an announcement to staff on planned downsizing. This news was reported in the local and national press the following day." The downsizing resulted from a slowdown in the company's US market, which cut the forward order book. Scott was returning to more "normal" pre-1998 staff levels.

"This is consistent with the comments made in our preliminary announcement to the Stock Exchange, dated 18 October 2000, and similar profit warnings noted in our 2000 annual report and at the company's annual meeting on 6 December 2000."

The aforementioned exchange officials should also reflect there is often a perception (valid or invalid is immaterial) that minor rules are enforced rigorously while big issues can be waived.

That is a PR problem. The chief executive of the exchange's PR advisers said last year (NBR, August 18) "the exchange has some interesting issues before it and a good story to tell which has been ignored over the years by poorly researched, cliché-ridden writers who look for sensationalism without considering all the factors in the performance of the New Zealand market."

What happened to the PR machine last week? Was it used, not turned on or ignored?

The debacle with Montana will hit the exchange, despite probable protestations to the contrary.

It is clear the latest performance has totally and finally delivered the proposed new takeover code which the usual vested interests, including the exchange which has its own "rules" (although apparently subject to waiver), oppose.

Other fallouts could happen. Sharebrokers rank way down on the ranking of the public's respect levels for occupations (NBR, January 26) and are unlikely to improve after the latest mess.

They will certainly not improve their image among those with whom they are negotiating for a united New Zealand-Australian exchange, assuming that proposal gets a majority vote among New Zealand brokers.

So why and how does the Stock Exchange regularly trip over its feet, or shoot itself in them?

Long observation of the organisation and its members suggest some possibilities:

Although the technical qualifications and members and brokers' staffs have improved dramatically over the years, there has been (with odd exceptions) a lack of creative ability and thinking apart from creating new forms of securities and marketing them.
Lack of creativity - a small number of people in the total occupational group and the specialised nature of the industry could have led to introspection, rejection of outside suggestion and instant adverse reaction to criticism.
Following from the first two, an insulation from, or lack of awareness of, the world beyond the walls of brokers and institutions offices. That is even seen in some brokers' research which may include nonsense from people with no business experience who issue judgments on the management practices and production systems of major public companies.

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