Weldon lectures misbehaving brokers

By ELLEN READ

The NZSE has gagged stockbrokers from talking publicly about the informal trading of its shares and says it will block any further attempts at trading them before the company lists this year.

This week, it became apparent that NZSE Ltd shares were already changing hands in private transactions. Offers apparently began at $4 a share and rose from there, with ASB Securities buying at $5.35, and JBWere offering $6. It is believed the trades were for less than the full 10,000 parcel received by each NZSE member and firm.

The NZSE says this breaches its constitution and the trades will not be approved.

Chief executive Mark Weldon has sent a memo to brokers, with a letter from chairman Simon Allen, reminding broker shareholders of the constitution rules.

These state that the NZSE has discretion to refuse or delay the registration of any transfer of shares in certain circumstances - one of which is if the parcel is less than the full 10,000-share allocation received by each member broker and firm.

Market sources say brokers wanting to trade their shares ahead of listing are likely to continue to try to do so, but from now on in full 10,000-share parcels, which they say the NZSE has no power to stop.

Weldon told brokers the trading "raised some serious questions about the integrity of our securities markets and the impact such behaviour has on NZSE Ltd moving forward as a regulator".

Allen's letter outlined brokers' constitutional obligations and said the NZSE board wished to "actively dissuade" trading. He said NZSE facilities must not be used for the posting, discussing, pricing or trading of the company's shares.

Stockbrokers were forbidden to comment by the NZSE and threatened with disciplinary action if they did. Fines of up to $20,000 for individual brokers and up to $250,000 for firms can be imposed.

However, the feeling among them is that it was naive of the exchange to expect trading would not happen as trading shares is what they do.

A simple way around the problem would have been for the shares to be put in escrow - on hold - until listing day.

Weldon said this was not done because it was not appropriate to restrict legitimate transfers and if business was conducted according to the constitution, no trading could take place.

The newly formed NZSE Ltd has 3.32 million shares on issue, so $6 a share would value the company at $19.9 million.

The exchange's corporate and individual members each got 10,000 shares as part of the transformation on December 31 from a mutual to a limited liability company.

The exchange intends listing on its own main board by June.