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Tim Bennett: Small can be beautiful too

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A planned new market will deliver opportunities for investors and for businesses, writes NZX chief executive Tim Bennett

Z Energy chief executive Mike Bennetts, centre, chairman Peter Griffiths, right, and NZX chief executive Tim Bennett celebrate, as the company is listed. Photo / APN
Z Energy chief executive Mike Bennetts, centre, chairman Peter Griffiths, right, and NZX chief executive Tim Bennett celebrate, as the company is listed. Photo / APN

Three structural changes in the capital markets provide the opportunity for NZX to develop and launch a new, unique market for small and mid-sized higher growth companies.

• Increased savings: there is a growing pool of money to invest, particularly from fund managers, but also a broad range of investors.

• New technologies: the internet has fundamentally reshaped how we interact as individuals and businesses, but is yet to be fully harnessed to connect investors and issuers.

• Regulatory framework: the recently passed Financial Markets Conduct Act provides flexibility to create different, more targeted markets.


A significant number of small and mid-sized businesses need capital to grow to their full potential.

They include smaller, high-growth companies with scaleable business models and regional or even global aspirations, along with more established mid-sized businesses with strong growth potential.

At the same time, a large number of New Zealanders would like to invest - either directly or indirectly - in these types of businesses.

They are looking for investments with higher growth rates and appreciate that this comes with a greater degree of risk.

They'd like to be part of - to have ownership in - New Zealand's success stories, and are dismayed when our best and brightest companies are sold offshore.

But something is not working; the current market mechanisms are not effectively connecting the sources and users of capital.

Companies struggle to get capital and investors complain they can't access these types of investments.

At a macro level, our track record as a country is poor: we under-invest in businesses and over-invest in property and fixed income investments.

As a result, we don't invest as much as we should in capital and infrastructure, and our productivity as a nation is low relative to our OECD competitors.


There is a gap in New Zealand's capital markets infrastructure.

At one end of the spectrum, smaller private markets - angel and venture capital - provide companies with the capital and support that they require to grow, with affluent, sophisticated investors taking ownership stakes (financial and emotional).

But the capital-raising process is costly and uncertain for companies and many potential investors are excluded. And for those investors who do participate, they lack liquidity in their investment.

At the other end of the scale is the NZX Main Board, which has added more than $10 billion of new capital in the past five years.

While the public market provides access to capital at an appropriate valuation for companies and liquidity for investors, for many smaller companies it is costly and complex.


For more than a year at NZX, we have been considering and analysing this problem around the gap in market infrastructure.

We have conducted hundreds of interviews with a wide range of people. We have reviewed six different markets internationally, including the AIM in the UK and the Nordic countries' alternative market, First Nord.

Our research highlighted a real need for a new market solution and the key features required to be successful.


Our new market will target companies with market capitalisation of $10 million-$100 million with strong growth prospects that are either looking to raise new capital or create liquidity for existing shareholders. On the demand side, we're targeting investors who understand the risk profile of higher-growth companies.

We'll ensure they are aware this is a different market environment and the risk profile of the companies listed is different to other markets.

To attract companies to the market, we're developing simplified listing rules and offer documents that are shorter and more standardised.

Sponsors, who bring companies to market, will be expected to provide advice to companies during and after listing.

To reduce cost and complexity for companies and increase the flow of relevant information to investors, we're planning to introduce a new approach to disclosure to encourage more frequent, regular and relevant reporting. This will include quarterly key operating metrics as well as half- and full-year financial results, and a specific list of items that must be immediately disclosed.

We're developing initiatives to increase market effectiveness and drive liquidity, including market makers that will provide depth in the order book for retail investors and an expansion of NZX's pilot research programme.

And to ensure it is robust, reliable and cost effective, the new marketplace will be built on NZX's existing infrastructure: world-class trading and clearing systems connected to brokers, registries, data providers, and accessible to domestic and global investors.

A number of the new features of this market depend on regulatory approval, which we are working towards achieving following the implementation of the Financial Markets Conduct Act, expected in April 2014.


NZX's new market will fill the gaps that exist in our capital markets infrastructure for expansion capital for higher-growth companies and mid-sized businesses that are seeking to provide liquidity to their shareholders.

It will provide access to a broad range of investors while ensuring they understand the risk profile of the businesses they invest in.

It will maintain the ownership connection between the company and individual shareholders.

The market will provide timely and accurate information about each business' performance to investors via a model that is appropriate to the scale of the companies involved.

It will also provide the support required to grow the business from directors and advisers without the cost of a traditional listed company environment.

Ultimately, it needs to serve the fundamental purpose of providing access to capital at the right price through a pool of active investors, in a liquid marketplace.

Objectives for NZX's new market


• Lower costs for raising capital and being a listed company.
• Reduced complexity for investors.
• Simple rules - listing, participants, investors.
• Simple disclosure - initial and ongoing.


• Group of investors who are predisposed to and aware of the risks of investing in smaller, higher-growth companies.
• Smaller, higher-growth companies and mid-sized businesses that need liquidity. Informed
• Investors have access to research and information on their current and potential investments.
• Companies that are actively engaged with their investors.

Cost effective

• Leverage new technology, NZX's existing infrastructure.
• Reduced costs for companies, investors, participants and sponsors.

Effective marketplace

• Liquidity - reflective of the company size.
• Valuation - fair and transparent.
• Robust - infrastructure and longevity.
• Well regulated.

- NZ Herald

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