FMA mulls NZX response to disclosure concerns

Mark Weldon. Photo / Mark Mitchell

The Financial Markets Authority is considering a response from the NZX to disclosure concerns stemming from the valuation of Australia's Clear Grain Exchange.

The NZX released an audit committee report on the matter and said in a market announcement that statements from its chief executive Mark Weldon were taken out of context.

The NZX also said Weldon's share dealings last month had the approval of its board.

The FMA's chief executive, Sean Hughes, said the authority would consider the response, together with the market release concerning Clear that NZX issued yesterday before making any further comment.

The FMA last week questioned the NZX about disclosure issues surrounding the exchange operator's investment in Clear Grain.

The controversy centred on testimony given to a Melbourne court by Weldon in May.

The NZX said yesterday that selective and isolated extracts of Weldon's evidence during the court proceedings in Melbourne had been reported in the media.

A reported reference to a substantial economic loss for Clear was intended, in context, to refer to the 2009 and 2010 calendar years, it said.

Those amounts had already been included in the NZX's 2009 and 2010 full-year financial accounts, the NZX said.

Weldon's comments were both historically accurate and not material in the context of the NZX Group as a whole.

In yesterday's statement, the NZX also said its board had confirmed that the carrying value of Clear on the NZX Group balance sheet remained unchanged.

In the past 10 days, the NZX board audit and financial risk committee, with external review from auditors KPMG, had carried out a thorough financial, operational and strategic review of Clear and its carrying value, NZX said.

"KPMG have reported to the audit committee that in their view there are no factors indicating there is an impairment issue that should be signalled in NZX's accounts," the NZX said.

"Whilst Clear remains in an early stage, and subject to significant volatility - including that driven by trading volumes that follow grain prices in the Australian market - the NZX board has accepted the recommendation of the audit committee, and determined that the amount held for Clear on the NZX group balance sheet should not be impaired."

The NZX also commented on the sale by Weldon of two million NZX shares last
month.

"The board wishes to confirm that the NZX CEO sought and obtained approved consent for the sale of NZX shares, as disclosed to the market," the NZX said.

"The board confirms, including based on the information in this release, that NZX has been and remains in compliance with its continuous disclosure obligations, including at the time Mr Weldon received consent to trade and placed an order to sell shares in NZX," it said.

NZX said Clear Grain represented 1.7 per cent of NZX's group revenues last year, and the Clear Grain carrying value represented less than 3 per cent of NZX's current market capitalisation.

Clear Grain's revenues are at close to 3 per cent of annualised revenues. "As such, CGX is not yet a major business within the NZX Group portfolio," it said.

NZX shares closed at $2.22, down 8c, while the market overall was weaker.

One financial market source said the threat of ongoing litigation with Clear Grain's founders was weighing on the stock.

- Additional reporting: NZPA