NZX acts to solve glitches

By ELLEN READ

After a series of technical mishaps that have hampered stockmarket trade over the past eight months, the NZX is developing an in-house system to solve the problem.

But share registry Computershare immediately criticised the move as unnecessary and said it could cause further problems.

The NZX plans to extend its clearing and settlement functions to include a snapshot of each company's share register, which would be uplifted from the registries each morning into a central clearing house (CCH).

Computershare and BK Registries hold this information at present - detailing individual shareholdings in each listed company - and brokers can check share balances with them before doing a trade.

The new scheme means all daily trades will be recorded in the CCH and downloaded to the registries each night.

NZX said this should prevent a recurrence of recent problems whereby stocks have suffered interrupted trading because of breakdowns either within NZX or affecting the telecom links between the exchange and the share registries.

Since August, it said, the exchange has closed twice due to internal problems and four times due to external glitches. The most recent was on Tuesday when a telecommunications link between Wellington and BK Registries in Ashburton broke down and delayed trade in 71 companies for several hours.

NZX chief information officer Chris Corke said the present on-register system was structurally flawed.

"The proposed CCH facility will provide greater certainty and security for New Zealand's markets and eliminate the cause of many of the more recent closures."

But Computershare managing director Mike Smith, whose company handles 80 per cent of listed companies' registers, said the changes could lead to balancing problems between the different registers.

"I consider the current system to be world-beating," he said, because the registries don't have to be online for trading to take place.


"All over the world registries and exchanges have little hiccups."

The NZX argument that brokers needed to be able to check that sellers own the shares they were trying to dispose of was spurious because of the "know your client" rules, he said.

"And they don't check the buyer's bank balance, do they? So why should they check the seller when it's the broker's responsibility to know you as a client," Smith said.

He said his experience in dealing with a similar system to that being proposed by the NZX, Australia's CHESS, was that it was more costly and had reconciliation difficulties.

NZX chief executive Mark Weldon said the CCH would bring the New Zealand market more into line with peer international markets, including Australia's.

"This type of system is internationally accepted, and indeed viewed favourably in terms of investor protection, because there is no inherent need for trading to be linked in real time to each issuer's individual registry," he said.

Submissions on the plans close on April 8 with NZX planning a July-August transition before the CCH is up and running in September.

NZX has spent a year developing the plan - which will cost between $750,000 and $1 million.

No extra costs are expected for market users.

NZX Presentations and consultation documents