New market watchdog the Financial Markets Authority yesterday announced it was questioning the NZX about disclosure issues.

Financial markets were abuzz after the FMA said it was taking an "interest" in the NZX's inquiry relating to matters surrounding the exchange operator's investment in Australia's Clear Grain Exchange, particularly the NZX's own continuing disclosure requirements.

The controversy centres on testimony given to a Melbourne court by NZX chief executive Mark Weldon in May to the effect that Clear Grain was not performing as well as had been expected.

In a transcript of court proceedings, Weldon said: "We've got another audit committee meeting coming up in June where we will look at what the actual numbers are as against the purchase price - the business is not performing well," he said.

"There is a substantial economic loss, there is a substantial cash flow loss in Australia."

But in the NZX annual report for 2010 there was no hint of problems at Clear Grain. "Continuing the commodities exposure available through NZX, the Clear Grain Exchange in Australia is demonstrating real momentum, with trading currently trading at four times the levels reached in the previous harvest," the report said.

It was not until July 5, when the NZX filed a suit in the High Court against Ralec Commodities, Ralec Interactive, Grant Thomas, Dominic Pym and other related parties, that the financial markets knew there were problems with Clear Grain.

The proceedings related to claims under the October 2009 agreement to buy Clear Grain for $8.8 million.

NZX's claims are for breach of warranty and related claims, and are made to protect NZX's commercial best interests. The claim's amount was not quantified. It is understood Clear Grain founders are preparing a countersuit.

The matter has drawn intense interest in the financial markets, given the NZX itself plays a big role in market surveillance.

The FMA said it was aware NZX was undertaking an inquiry into matters relating to Clear. "We have asked some questions of NZX and we are following their inquiry with interest."

The FMA said it expected to hear the inquiry's conclusions within the next few days.

"As regards the compliance of NZX Ltd, as a listed entity on its own exchange, with its own listing rules; NZX is subject to the powers of the special division of the NZX Markets Disciplinary Tribunal, which undertakes the role that NZX Market Supervision undertakes in respect of other listed entities," FMA chief executive Sean Hughes said.

"Because this is an issue relating to continuous disclosure, the FMA, pursuant to Part 2 of the Securities Markets Act , has a statutory responsibility to oversee the compliance of listed issuers (of which NZX Ltd is one) with their continuous disclosure obligations," he said.

NZX chairman Andrew Harmos said it was not right to say the NZX was under investigation.

"It is not a big, sensational matter at all. It is normal routine inquiry ... and they are awaiting the outcome of our review which we will announce as soon as it is completed."

Accounting firm KPMG had been called in to compile a report for the NZX's audit committee, Harmos said.

Clear Grain Exchange was set up after the break-up of the Australian Wheat Board monopoly, seeking to capitalise on the A$100 million ($126.7 million) or so growers spent annually on sale commissions. Clear was expected to add another string to NZX's bow, particularly as it sought to branch into the agricultural sector.

The Melbourne court case, at which Weldon appeared, centred on an employment dispute with Clear Grain founder Grant Thomas. NZX was told to pay him $259,705 plus costs. One fund manager said most analysts had been positive on the stock until the NZX lodged its legal claim on July 5.

"Subsequent to that there has been concern about a lot of things and the share price has peeled off."

NZX shares closed yesterday at $2.30, down 5c.