Stock exchange operator NZX has cut costs by almost 27 per cent since the end of 2016 and estimates expenses will fall a further 5.5-8 per cent this calendar year.

"People are our main investment and this reduction has been primarily driven by a fall in staff numbers following the disposal of our non-core businesses last year," chair James Miller told the annual shareholders' meeting.

NZX's operating margin continued to improve, rising 10.2 per cent in 2018, and the exchange aims to improve that further this year.

"Our aspiration is to align with our peers for whom the regional stock exchange average is 52 per cent," Miller said.


The slide he was talking to showed NZX's margin at the end of 2018 was a little below 40 per cent. "As you can see, we still have work to do," he said.

"To provide shareholders with increased transparency and reassurance that costs are being effectively managed, the board today provides greater clarity that we expect NZX's 2019 expenses to be in the range of $37-38 million, down from $40.2m in 2018."

Miller also reaffirmed previous guidance that earnings before interest, tax, depreciation and amortisation will be $28-31m.

He was answering trenchant criticism of NZX's performance as a company from a number of quarters, most notably from shareholder activist Mike Daniel.

Representing a group of disgruntled shareholders, Daniel had threatened a board challenge at today's AGM unless NZX committed to significantly cut costs.

In answering a question from Daniel near the end of the meeting, Miller referred to his forecast of expenses and said: "We don't normally, give costs guidance."

Last year, NZX rejected a number of proposals from Elevation Capital's Chris Swasbrook, including his appointment to the board, which NZX rejected.

However, Miller congratulated Swasbrook at the meeting on his appointment to the Financial Markets Authority's board.


While the New Zealand Shareholders' Association has been critical of the NZX in the past, it voted all its proxies, which taken together count it in the top 20 shareholders, in favour of all resolutions, including Miller's re-election and the election of Elaine Campbell as a director.

Daniel had asked NZX to identify the costs it incurs in relation to its regulatory functions.

Chief financial officer Graham Law said the biggest cost is the staffing of its regulatory arm, currently at 22 full-time equivalents, but that regulatory requirements span the full business, including the clearing house and some costs are priced into services to customers.

Some of the savings being achieved are from using the work done by NZX's external auditor, KPMG, both for the company's full audit and for the clearing house's operational audit requirement.

Miller said Law, who joined NZX in November 2017 and was previously managing director and chief financial officer at AMP Capital New Zealand and head of finance at ACC, had been through NZX's expenses on a line-by-line basis to work out where costs could be cut.

NZSA chief executive Michael Midgley said after the meeting that "I was startled that a significant investor who is raising issues (Daniel) said he was not aware that the NZX had a regulatory function with an attached significant level of cost."

Miller and chief executive Mark Peterson had emphasised the work NZX has done to encourage new listings – in the first quarter of 2019, NZX gained six retail debt listings totalling $1.95 billion, up from three totalling $325m in the first quarter last year.

Peterson told the meeting that NZX needs to lift the number of traded securities, the number of market participants and investor connections which should flow through to secondary trading volumes.

"We need to do this quickly, efficiently and without affecting the market's daily operation. That is what our core markets strategy is all about," he said. It is also the reason NZX and the FMA formed the Capital Markets 2029 committee headed by Martin Stearne, a corporate consultant and former managing director of merchant bank FNZC.

"Our entire organisation now focuses on deepening customer relationships, adding value and delivering growth in their respective areas. Our reputation is transforming and we are beginning to be known for putting customers at the heart of what we do," Peterson said.

"Make no mistake – we still have a way to go, but we are heading in the right direction."

For example, new participants, particularly international firms, need to be sure that price discovery from trading activity is matched on screen. "This has improved materially over the last two years with 2018 levels averaging 53.4 per cent and reaching a record high of 57.2 per cent in December.

"This is well up from 2017 levels, which averaged 41.9 per cent, and we would like to see further growth over time."

Midgley said NZX is making progress on growth. "They've massively listed the debt listings, which is hugely positive. From little things, big things flow."