NZX's inability to rapidly control a malicious and persistent series of cyber attacks is not a good look for the stock exchange operator, even though there is a fair amount of sympathy from some corners of the market.
Four days of disrupted service is a damaging blow to the credibility of the local sharemarket and is already spuring calls for the NZX to consider merging with the ASX.
It is also likely to escalate the growing trend for companies to decouple from the local bourse and take up residence on the other side of the Tasman such as tech darling Xero did a couple of years ago.
Mike Daniel, an outspoken activist investor who has previously pushed hard for change at NZX, said the shutdown of the NZX trading platform was a "big governance and managerial" miss.
He's calling for NZX to give up on its strategy of signing memorandums with other exchanges like Singapore and Nasdaq and start engaging with the ASX, which has been merrily picking off "juicy listings" from New Zealand.
"I believe if NZX's integrity is to be preserved in the long run our capital markets 'governor' the FMA should be instructing NZX to engage at a high level with ASX with more than adequate robust capacity to accommodate NZX's trade amongst many other benefits," he said.
One key problem the NZX faces is that large institutions from the US and other parts of the world are not always driven to invest in NZ stocks partly because of their mandate but also because we are an unknown quantity.
AdvertisementAdvertise with NZME.
A 25-year-old fundie based in New York trying to find some alpha might look down here and see some potential but his or her boss is now probably going to say, 'forget it - remember that time we couldn't sell shares for a week'.
Local fund managers have already expressed concern about the wider ramifications of this week's shutdown.
For many local businesses on the NZX it may not seem such a big deal.
Where a company is cashflow positive, has a strong underlying business, and is not subject to wild volatility in its price or liquidity, the NZX going down for four days is a nuisance, but not necessarily problematic.
But where there has been high volatility in speculative stocks yet to be cashflow positive, or where there has been increased volatility relative to their worth, there is a possibility of investors getting badly hurt if they get caught on the wrong side of a swing when the NZX platform crashes.
NZX bosses were obviously donkey deep trying to resolve the issues during the week. But now they need to provide some answers to where the stock exchange goes from here.