Growing the capital market takes a village

Joanna Lawn. Photo / Supplied

Joanna Lawn shares her insights on the collective effort needed to list a company on the public market.

There's a familiar saying that it takes a village to raise a child — and without sounding too cliche, there are many parallels we can draw with our own capital markets' community.

A multitude of participants make up our capital markets ecosystem; market players who include brokers, advisers, accountants, lawyers, policy makers, industry bodies, regulators, companies and investors.

Each market player contributes to the creation of a vibrant, well-functioning public market in New Zealand which benefits the economic health and wealth of our nation.

As an exchange operator, the team at NZX has a responsibility to influence the demand for new listings, but it is the collective effort of the capital markets' community that determines whether a company goes public.

Listing is a team effort.

NZX is the face of New Zealand's public capital market, but it is only one member of the vital cast needed to list a business.

Influencing the demand for new listings

As New Zealand's only licenced market operator we have a responsibility to sell the market's story and the benefits of sourcing public capital.

The team at NZX is stepping up its efforts in these areas, working hard to ensure we deliver on the straightforward and unsurprising parts of the ecosystem which fall in our remit as a market operator. Better supporting our existing and prospective customers is one of these actions.

I joined the exchange in late 2017 because it offered a unique opportunity to play a key role in development of this action and lead the new team responsible for putting our current and prospective equity, debt and funds customers first.

Since the team was formed in December we have engaged with 100 per cent of our customers, and met with market influencers to support companies considering listing, to ensure we play our role in growing the pipeline of investable product for New Zealanders.

This engagement is supported by improvements to our service offering, which include increased marketing efforts to give our customers more exposure to a wider pool of investors.

We are sponsoring investor roadshows for small to mid-cap companies, hosting retail investor evenings, and promoting the benefits of raising public capital via IPO masterclasses.

These events now happen frequently and are hosted alongside the participant community.

These are the types of actions NZX has the ability to quickly address and control.

The things we can only seek to influence within the ecosystem have been more challenging to progress.

For example, though we can seek to influence third party costs associated with listing, these are outside our direct control.

We can also work alongside the advisory committees to support companies through the listing process, but we have no influence on pricing, and at the end of the day we can't force a business to list.

With investors seeking out companies who have environmental, social and governance issues at the heart of their business, the exchange is also stepping up its commitment to grow a sustainable public market.

Raising the awareness of listing green bonds is one of these actions.

Green bonds are used to finance or refinance projects with clear environmental benefits.

This is a funding method for governments and companies to undergo climate-positive projects, and a way for investors to be more ethical with their capital.

We have also established a primary sector index to help investors better track the performance of this growing sector — one where New Zealand is a world leader — and create more investable product.

This sector generates a significant portion of our country's wealth at 6 per cent of New Zealand's Gross Domestic Product, while the combined market capitalisation of the 15 companies in the index accounts for 12 per cent of the NZX Main Board. The primary sector index has outperformed the S&P/NZX 50 index since 2011, increasing 327 per cent, compared to 153 per cent.

Advancing the New Zealand market structure

New Zealand's market structure, and its rules, must promote integrity and assist in delivering more investable product, deeper liquidity levels and greater participation rates.

The structure of the market must be simple, logical and in line with global standards.

We are addressing what we can do to improve the structural competitiveness of the market via proposed changes to the exchange's listing and participant rules.

An exposure draft of the updated listing rules was released last month. The aim here is to simplify the rules under which our listed customers operate, without compromising the market's quality or integrity. It should be possible for companies to access wider capital pools with minimal regulatory burden.

At the same time, we are seeking feedback from market players on rule changes designed to improve liquidity and increase price transparency in the secondary market.

These rule changes cover two areas: the speed at which orders can be brought to market and market crossings. The aim here is to align the secondary market's policy settings with global peers and improve further on-market liquidity.

The rule changes will be introduced alongside commercial changes, which will see a cost structure that better meets the market's needs.

These changes follow the trial of a tailored price structure in the secondary market which has contributed an additional 23.92 per cent to on-market liquidity this year, helping on-market value traded to surpass 50 per cent in the first quarter.

This is a big improvement on three years ago when on-market value traded was 35.2 per cent.

Going global

We need to think more broadly than just New Zealand.

Building a global profile for New Zealand's exchange is a key pillar of our strategy and I am encouraged by the early conversations we are having with likeminded exchanges. To compete globally we need to create alliances with our peers to gain access to international capital and investors. To achieve this, we must market our market.

New Zealand is a trusted and well-respected place to do business and this enthusiasm is present in conversations we are having with prospective global customers.

Our country has many points of difference and areas of strength grounded in the economy, and marketing these strengths will help to extend the exchange's competitive positioning.

Seeking out efficient ways to expand the scale and scope of our exchange is a theme consistent with smaller exchanges globally. We have broken away from the regional stock exchange model and are building a network of global alliances, while maintaining our sovereignty and identity as a national exchange.

NZX signed Memorandum of Understandings with the Hong Kong and Singapore exchanges earlier this year — the first step in cementing these relationships.

These relationships have many layers, and include co-marketing efforts, the promotion of market development initiatives such as dual and secondary listings, exchange traded funds and derivatives products.

Then there are opportunities to share technology and operational practices.

The regulatory regimes of the Singapore, Hong Kong and Toronto exchanges have also been recognised by NZX's regulatory function, complementing agreements we have with the London Stock Exchange and the Australian Securities Exchange.

This will all help to open our public market up to new investors and capital, and is an efficient and effective way to create scale and scope beyond the go-it-alone model.

We are doing things we have never done before at New Zealand's exchange — and we are approaching the way we run our business with fresh energy and enthusiasm.

There are a number of exciting opportunities in front of us all to grow our capital market and create a strong pipeline for investment opportunities for New Zealanders.

It's like the saying goes, an entire village can raise a child, and preparing a company to list takes that same collective, community effort.

NZX is a committed and passionate member of that collective effort.

● Joanna Lawn is Head of Issuer Relationships at NZX