NZX to carry out extensive review

Mark Peterson, chief executive of the NZX. Photo / Greg Bowker

NZX will carry out an extensive review of its business with the results due in November and while shareholder Tony Falkenstein wasn't elected to the board, his observations will be considered as part of that review, chairman James Miller told today's annual general meeting.

Chief executive Mark Peterson - who took the helm on January 1 - told shareholders in Wellington that the review "will determine the shape of our business and influence the strategies we will adopt in growing the business and New Zealand's capital markets for the long-term." The goal is to make sure "we have a business that's completely connected back to the core" and that any adjacent businesses can be leveraged back to that core, he said.

Another element will be managing costs, Peterson said. "It's about assessing the businesses we are in, whether there's longevity there, whether there's upside for us in what we have and making sure if they are a part of our business that they actually link back to the core," he said.

NZX's commercial ambitions saw it make a series of acquisitions under former boss Mark Weldon, who wanted to build an agricultural information portal, whereas his successor Tim Bennett was more focused on developing the stock market operator's funds management business.

Chairman Miller told the meeting that "everything is to be considered" as part of the review. The aim is to create a new five-year strategic plan with details to be announced in November.

Miller said Falkenstein had "sent a good rocket" at the board and made some "reasonably powerful observations" that have been heard. His run at the board, however, didn't win enough support after the sitting directors said he wouldn't add the necessary skills or experience they are looking for, based on a skills matrix and gap analysis in conjunction with governance services firm Propero Consulting. Falkenstein argued, however, the board needs more "diversity in thinking" and that is something he could offer.

Falkenstein, who founded the NZAX-listed water cooler business Just Water International, reiterated his view that the board needs to be more dynamic and more needs to be done to encourage new listings. "My motivation is to see an exchange with 300 listed companies," he said.

Regardless of the election outcome, however, standing for the board was about making shareholders' voices heard, he said, adding he'd already been a catalyst for change.

Falkenstein had long opposed the exchange's NXT market which aimed to target high-growth companies.

Earlier this week the NZX announced it was mulling a simplified structure that could combine the main NZSX board, the NZAX alternative market which is being phased out, and its replacement market for small caps, NXT.

"New Zealand is too small for three equity markets," Peterson told the AGM.

Following the review of the current equity market structure, NZX will also start a formal consultation process on the structure of its broader market and a review of its Listing Rules for current Main Board issuers, late in the third quarter, he said. The last time the listing rules were reviewed was in 2003.

The review will seek to remove unnecessary compliance costs, enhance investor protections - where appropriate - to drive increased market participation, and make it easier to list a wider range of financial products, Peterson said.

NZX shareholders were told the company is on track to meet guidance with strong earnings in the first five months of the year, largely due to an 18 per cent decline in operating costs.

Looking forward, Peterson also agreed there is a need for more listings with the market averaging 11.5 listings per year since 2003. Peterson said one of his first acts as chief executive was to create a dedicated team to focus on listings and a search is underway for a Head of Listings.

NZX has also sought to drum up interest in Australia for possible listings at a time when a growing number of New Zealand firms were choosing to list on the ASX.

Peterson said the NZX was recently in Australia talking to a number of companies and had a positive reception with a number of good leads from companies that have a strong presence in New Zealand already.

However, "it is important to remember NZX only plays one role in helping to create supply," he said, noting global trends have changed. Total costs associated with listing have increased, investments in mutual funds have increased, alternative forms of funding are now more prominent, and there is lack of company information - particularly for smaller businesses, he said. "All of these things contribute to lower IPO rates."

Peterson said he is also focused on improving the efficiency of the secondary market and is considering a range of options. Next week NZX will trial a tailored trade pricing structure designed to attract new local and international electronic trading flow that isn't being traded at present, he said.