NZX 'strongly opposes' exemption for Unlisted, saying it could tarnish capital markets

NZX, New Zealand's only registered stock market operator, said Unlisted operates without disclosure requirements and is not subject to insider trading or market manipulation restrictions. Photo: NZME.

NZX, which is New Zealand's only registered stock market operator, "strongly opposes" a bid by share trading platform Unlisted to be exempted from new licensing requirements, saying its lack of basic shareholder protections could tarnish the reputation of the country's capital markets.

Unlisted is petitioning Commerce Minister Paul Goldsmith for an exemption from being licensed by the Financial Markets Authority, as required by the Financial Markets Conduct Act which came into force in December, arguing it offers a lower cost alternative for smaller companies than NZX.

However NZX rejects Unlisted's bid for an exemption, saying the new law is an opportunity to reconsider whether Unlisted should continue operating outside of the regulatory framework.

"NZX considers that the granting of such an exemption would result in significant and unnecessary risks to the confidence, integrity and reputation of New Zealand's capital markets," the Wellington-based company says in a submission to the Ministry of Business, Innovation and Employment.

The Financial Markets Conduct Act arose out of the Capital Markets Development Taskforce in 2009, which looked to deepen New Zealand's capital markets while beefing up investor protection and regulatory oversight after the collapse of finance companies.

The legislation overhauled the country's decades-old securities law with a goal of improving public confidence in New Zealand's capital markets.

NZX said a broad exemption would be inconsistent with the policy rationale underpinning the entire new act, and outlined its concerns regarding insider trading, market manipulation and the lack of other rules around disclosures and regulations.

The lack of disclosure and market supervision for Unlisted meant it was "effectively impossible" to highlight cases of insider dealing or market manipulation, it said.

"The FMCA outlines basic shareholder protections in relation to the operation of fair, orderly and transparent public markets, including prohibitions against insider dealing and market manipulation," NZX said.

"The lack of these basic shareholder protections is arguably tacit acceptance of the type of market misconduct which has the potential to tarnish the reputation of New Zealand's capital markets.

"This is an extremely undesirable outcome given that market confidence is still fragile following the Global Financial Crisis and recent finance company collapses," it said, adding there was "no justification" for overriding well-considered policy so soon after implementation of the new law.

NZX rejected an accusation from Unlisted's operators that it opposed the bid because it feared competition, saying its concerns go "far beyond" individual commercial motives and it would get only "very limited" additional revenue if it gained Unlisted's issuers.

"However, the risks posed by Unlisted's current operating model to the reputation of all of New Zealand's capital markets are very significant."

It said it didn't accept that its costs were prohibitive, and cited the option of its NXT market, crowd funding or peer-to-peer lending for smaller issuers. It wasn't fair that every other operator had to comply with the requirements of the new act except Unlisted, it said.

NZX said Unlisted should either introduce some basic regulation covering issues such as insider dealing, market manipulation and disclosure requirements which would allow it to operate within the licensed framework or it should be wound down as a public market.

"It is difficult not to get the impression that this is a public market run primarily for the benefit of key insiders," NZX said. "It may therefore be better to be run as a private market."