NZSE merger: frequently asked questions

By NZ STOCK EXCHANGE

In a bid to end confusion and educate the market the New Zealand Stock Exchange last year prepared the following questions raised by a merged Australasian Exchange and answered them.

The 12 points are in draft form only and the NZSE requested that as negotiations are still underway with the Australian Stock Exchange they are treated merely as indicators of a likely outcome, not binding rulings on the NZSE's view of a merged entity.

Proposition One

New Zealand has a reputation with some international investors and local critics for poor economic performance, how will this change?

Response

This is not a merger issue, it is a governance and regulatory regime issue.

A harmonisation of regulatory outcomes will help to deal with regulatory perceptions, while issues of corporate governance will be subject to peer pressure from Australian companies.

Proposition Two

The NZSE has no choice but to merge otherwise the major companies will migrate.

Response

Listing migration is a global trend and capital availability issue. It is not affected by the ownership structure of exchanges.

Proposition Three

Merging with Australia will simply result in our market being submerged by the Australian market.

Response

A merged market will put better NZ companies on the "radar" of international investors.

NZ companies who perform better than their Australian equivalents will benefit from access to the same, larger, capital pool.

More capital will be available generally to the local capital market and companies.

Proposition Four

Although New Zealand companies will fall down the combined index ranking they will nevertheless still make up part of a wider index system and will attract broader investment interest.

Response

Yes. Also local brokers will continue to research and recommend smaller companies to investors.

Proposition Five

Many New Zealand stocks will simply fall off the research radar screen in a merger with Australia.

Response

As broking firms divide between those with overseas ownership and those with local focus, it is reasonable to assume that more specialisation will see local research generated on smaller local companies.

There will always be local interest in "local only" stocks.

Proposition Six

A merger will result in higher transaction and compliance costs.

Response

Overall costs will rise initially but longer term the benefits are expected to outweigh this with greater liquidity, broader investment interest and potentially lower unit costs.

Proposition Seven

A merger will stimulate Trans-Tasman migration not only of companies but also of advisers and intellectual capital in general as the market becomes more focussed on an Australian regime.

Response

This is a general trend and not an exchange issue. Reversal requires Government incentives for NZ location.

Proposition Eight

A wider group of "market participants" should be making the decision, not the members of the exchange.

Response

The structure of the New Zealand Stock Exchange is such that the members have the right to make decisions such as the merger. However, all members have an interest in the future performance of the market and those who participate in it. As such we expect members will take a broad view of the merger proposal when they come to vote on it, beyond their immediate financial interest.

Proposition Nine

What role should the government play in the decision-making process?

Response

A facilitating role. Government has basic responsibilities for securities market legislation and regulation.

Proposition Ten

How should the market sovereignty issues be dealt with and to what extent does New Zealand need its own capital market to stimulate the economy?

Response

Like foreign ownership generally, exchange ownership does not matter. The Government can always regulate to control market conduct if it has good reason.

Proposition Eleven

What impact will a merger have on our capital market?

Response

Existing capital formulation will continue within New Zealand with the opportunity to tap into a greater Australian capital market.

New Zealanders are increasingly investing globally in any case, and an efficient market should facilitate that.

We don't want only a high cost, small local-only market.

Proposition Twelve

Is Australia the logical partner or should we try for more globalised alignments with Asia and the US and seek to adopt US Securities and Exchange Commission-style regulatory regime.

Response

The Australian merger is a natural and practical step towards globalisation and creates a regional strength and opportunity for New Zealand companies.

We either participate in globalisation or get marginalised.