Catalist has been designed for small to medium sized businesses. Photo / Supplied
Catalist has been designed for small to medium sized businesses. Photo / Supplied
Investors who want to participate in a new public stock exchange will only be able to trade during a company's auction window which could be held as frequently as once a month or just once a year.
Colin Magee, a former conduct supervisor with the Financial Markets Authority, has receiveda licence to operate Catalist as a public market from June 21.
It will target small and medium-sized companies valued between $6 million and $60m and allow them to raise up to $20m a year.
Unlike the NZX, trading in the companies listed on Catalist won't be available on a daily basis but during an auction period which the company will have to specify in a schedule when listing.
"It will depend on the business but every business will have to publish their schedule so that could be once a year, for others it could be once a month."
He said some businesses that were already trading using its private markets held trading windows either once a year or once a quarter.
Companies also won't have an obligation to provide material information continuously as those on the NZX do.
Magee said material information like financial statements would be posted a week before the auction period opened and that would be open for about a week for buyers and sellers to make bids/offers before a 24 hour close-off period.
Taking away the continuous disclosure requirement lowered the obligations for businesses that listed with it, he added.
"They can get on and run their business between those events rather than having to respond to things like media queries.
"But at the time of the auction they can have really good engagement with investors."
Companies wanting to change their auction schedule will have to post the change and then have at least one more auction under their existing schedule to allow those who want to sell to get out.
Colin Magee, cofounder and chief executive of Catalist. Photo / Supplied
Magee said companies would have to have their financial accounts audited but only required a lower-cost audit rather than the full Financial Markets Conduct Act audit that was necessary for NZX-listed companies.
But he said it would still mean that investors got an independent view on the company's accounts.
The differences could mean businesses who want to list pay about a tenth of the cost of listing on the NZX.
"The main driver is not just cost reduction but that it doesn't take the focus off managing your business as usual which is what the real problem with being listed on a stock market is for smaller businesses."
The NZX has previously had a market for smaller companies - the NZAX - and more recently high-growth companies on the NXT market but both struggled to attract many listings and were folded into the main board.
Magee said it had talked to a lot of businesses that were listed on those markets or advisers of those business.
"The main feedback we got was that it wasn't different enough from the main board - that meant the costs were similar to being on the main board - really that is because they were continuously traded.
"Continuous trading doesn't really work very well for securities that don't actually trade very often. You end up with a situation where it is actually a disincentive to put in the next order because there isn't a price that is visible in the market. By putting everything together into periodic auctions it actually produces fairer pricing because you batch all the supply and demand."
Magee won't say how many companies he has lined up for the June 21 go-live date but is hoping to attract 200 companies to list over the next five years.
It will also help companies move from Catalist to the NZX or other main markets once they grow big enough.
"Once a company gets to $100m valuation they can only stay on the market for up to another two years. It is designed to provide a deal flow to assist more businesses to grow to a stage where they can do more traditional listings as well."
