The NZX will catch up with its counterparts around the world when it launches equity derivatives next month. The exchange operator will offer index futures contracts, which will trade off the NZX20, from June 16.

The NZX20 index is made up of New Zealand's 20 biggest and most liquid companies and includes Telecom, Fletcher Building, Auckland Airport and Mainfreight.

The contracts are essentially an agreement between a buyer and seller on a price for an index value - the NZX20 was at 4035.1 yesterday afternoon - at a future date. Index futures, which are common overseas, are often used by fund managers for hedging against risk and "equitising" funds to avoid holding cash.

Equity derivatives haven't been offered by the NZX since 2008, when the exchange last offered futures contracts based on the NZX15 through the Sydney Futures Exchange, which merged with the Australian Stock Exchange in 2006.


Its last foray into equity futures wasn't a great success as a result of logistical challenges around trading through Australia and liquidity issues with the underlying stocks that made up the NZX15.

Sam Stanley, NZX's head of exchange products, said liquidity had improved within the 20 largest stocks that comprise the NZX20, especially since the listing of state-assets such as Mighty River Power and Meridian Energy.

The NZX20 also had "incredibly tight" correlation with the NZX50, he said. "Hopefully that provides a level of comfort for investment managers."

Stanley said many New Zealand fund managers used equity derivatives available on overseas markets, which may not have been the case when the NZX last offered them.

"You've got a lot of experienced fund managers who have offshore experience in the UK or wherever - they're quite familiar with the many benefits of using derivatives."

Former NZX chief executive Mark Weldon told the Business Herald in 2011 that equity derivatives would be launched in 2012, but there were delays getting the complex systems required to offer such products up and running.

Single stocks

Single stock options would become available soon after the index futures launch, Stanley said. The NZX was planning to offer contracts on Telecom, Fletcher Building and Trade Me shares initially.


These contracts give the buyer the right, but not the obligation - hence the "options" - to buy or sell a fixed number of shares at an agreed price in the future.

Traders basically bet on stocks either rising or falling.

Each contract will be for 100 shares and the NZX is planning to expand its options offering additional stocks.

While index futures are expected to be mostly used by fund managers, the NZX expects some appetite among retail investors for single-stock options.

But these are complex, risky products that come with lots of mystifying jargon and one hopes only the most sophisticated retail investors will take a punt.

Launch welcomed

Harbour Asset Management managing director Andrew Bascand said the imminent launch of equity derivatives had been warmly welcomed by most market participants.

"Let's not dwell on how long it's taken," he said. "We've all survived without them and we're looking forward to [using derivatives] to improve the efficiency of our portfolio management."

Bascand said one example of how a fund manager would use index futures would be if the firm suddenly found itself with a large sum of cash - say $10 million - it needed to invest.

"Rather than leave that $10 million to sit in a bank account that night, I can go and buy $10 million worth of NZX20 futures and the concept is I equitise that money and gain an exposure to the New Zealand equity market for that night and the following days while I analyse where best to invest that money."

Alibaba's elephant

Counterfeit goods could end up being an elephant in the room for Chinese e-commerce giant Alibaba as it prepares for what may become the biggest stock exchange listing in history.

The Hangzhou-based online retailer may sell more product than American rivals Amazon and eBay put together, but it has reportedly been forced to remove 100 million listings of suspected fake goods in the last 12 months alone.

A Californian bicycle manufacturer, Dahon, told a US business publication that half of the almost 60,000 bikes sold under its brand on Taobao, one of Alibaba's online marketplaces, were knock-offs.

Alibaba - which is often described as a mix of Amazon, PayPal and eBay - doesn't actually own the product it sells. It instead relies on a vast network of traders and retailers who set up virtual shop fronts on its various online platforms.

Taobao also played the somewhat dubious role of being the platform used to sell massive amounts of "grey market" New Zealand-made infant formula in China over the past few years. That trade, which involved product entering China through unofficial channels via Hong Kong, flourished in the wake of China's 2008 melamine scandal but is understood to have largely dried up as a result of the Fonterra botulism scare.

The Wall Street Journal said the counterfeit issue could raise "some awkward questions" ahead of Alibaba's listing on either the Nasdaq or New York Stock Exchange, which is expected to raise up to US$20 billion ($23 billion) and value the company at roughly US$200 billion.

"They will have shareholders who will not want to be associated with a company making its money on counterfeit goods," said Damian Croker, chief executive of counterfeit monitoring firm BrandStrike.

The New York Times said Alibaba's "complex web of businesses and dealings" could put off potential investors.

To its credit, Alibaba has said it spends more than $18.5 million annually fighting fake goods sold on its websites.

Founder and chairman Jack Ma was quoted last month as saying "counterfeits are the narcotics of the marketplace".

The listing is expected to go ahead later this year following an IPO roadshow.

Cool weather, hot result

Kathmandu solidified its place as one of New Zealand's top-performing listed retailers when it delivered an upbeat trading update this week.

The outdoor apparel and equipment seller said its third-quarter revenue rose 3.6 per cent to $93 million on the back of strong Easter sales, which had benefited from cool weather on both sides of the Tasman.

Kathmandu shares gained 8.7 per cent to hit a record $4 on Wednesday but closed down 14c at $3.86 last night.

The transtasman retailer will be hoping for some icy southerlies during its winter sale, the company's largest promotional event that takes place in June and July.

Meteorologists are predicting average or above-average temperatures in New Zealand and some parts of Australia this winter and Kathmandu indicated on Wednesday that weather was "a key variable" to the winter sale's success.

The company said it remained confident it would pull off a strong full-year performance.

Three amigos

There's probably been a fair amount of light-hearted ribbing going on amongst the Craigs Investment Partners research team this week.

Craigs supplied all three finalists for the analyst of the year title in the Institute of Finance Professionals in NZ (Infinz) Awards, held in Auckland last night.

They were head of research Grant Swanepoel and analysts Arie Dekker and Stephen Ridgewell.

Dekker - who covers stocks including Telecom and the Fonterra Shareholders' Fund - ended up winning the award for the second year in a row.

Infinz executive director Jim McElwain told Radio NZ it was just a "coincidence" that all three finalists were employed by Craigs.