Gaynor: Skimpy safety net for NZSE investors

By BRIAN GAYNOR

What happens if your stockbroker goes belly up and owes you money?

The New Zealand Stock Exchange has established a fidelity guarantee fund for this purpose. The fund has net assets of $446,000 and can pay out a total of $500,000 on any one failure and a maximum of $20,000 to any one claimant.

These amounts can be increased at the discretion of the NZSE board, which can levy members up to $1 million in any one year.

Thus if a broker goes under with claims of no more than $500,000 and your exposure is $20,000 or less you will get your money back. If the broker owes more than $500,000 and your exposure is more than $20,000, then the amount you receive is likely be scaled back on a pro rata basis along with other creditors.

Unlike the NZSE, many other exchanges are required under statute to operate fidelity funds and to maintain these at prescribed levels.

The Australian Stock Exchange administers and contributes to the national guarantee fund under Part 7.10 of the Corporations Law. The fund has a current value of $A158 million ($196 million) and there is no limit for an individual claim, although the total amount payable for any one insolvent stockbroker is $11.2 million.

The Singapore Stock Exchange is obliged to maintain a fidelity fund under Section 75 of the Securities Industry Act. This fund has assets worth $S30 million ($40 million) and has no specific payment limits.

The New Zealand stockbroking industry is on a sound footing, but if a large broker goes under, investors have less protection than their Australian and Singaporean counterparts.

The most any New Zealand claimant can expect to receive after a broker's insolvency is $20,000.

MARKET DEPTH

The unavailability of market depth data from the NZSE is a major issue for many computer-savvy investors.

Market depth information allows investors to see the number of buyers and sellers for individual stocks, the amount of shares they wish to transact and their price limits.

This information is a great help in understanding the relative strengths and weaknesses of buy and sell quotes.

The best way to compare the different information provided by the ASX and NZSE is to go to www.stocknessmonster.com and call up the quotes of AMP and Telecom on both exchanges during trading hours. Then click the depth button in the upper right-hand corner to find a wealth of information from the ASX and a big blank on the NZSE site.

The NZSE has argued that brokers have not made this information public because it would erode their competitive advantage. In other words brokers have wanted investors to phone them for this data.

But change is in the wind. The NZSE has been surveying its members on several issues including market depth, extended trading hours, increased marketing and a presence in Auckland.

Managing director Bill Foster said the results of this survey showed that opposition to the provision of market depth had almost totally disappeared. He wouldn't confirm that this data would be made available to investors but he hinted that it would.

The provision of market depth information by the NZSE is long overdue.

AIR NEW ZEALAND

Oh to be a fly on the wall at an ANZ Banking Group directors' meeting in Melbourne. The chairman of the group, Charles Goode, is also a director of Air New Zealand and Singapore Airlines. Two other members of the ANZ board are Gary Toomey, chief executive of Air New Zealand, and Margaret Jackson, chairwoman of Qantas Airways.

Do these three try to plot a course for Air New Zealand over beer and chips at the after-meeting function? Maybe Dr Roderick Deane, who is also an ANZ Bank director, keeps a stern eye on proceedings and makes sure that discussions on our national carrier are kept strictly off limits.

BENDON

Believe it or not, Bendon's directors have been big beneficiaries of Telecom's poor share-price performance. They also paint a fairly optimistic view of the group's future but, with one exception, have continued to be sellers of the company's shares.

In June 1998 a number of directors including Ian Parton, Richard Smith and Joan Withers were issued 100,000 options each. The original exercise price was $1.28 a share to be adjusted (up or down) by the percentage change in the NZSE40 gross index between the issue date and the exercise date, less Bendon's dividend payments during the period.

Mainly because of Telecom's poor share-price performance, the NZSE40 gross index remained depressed and the company's recently released annual report revealed that all three directors exercised their options in June last year at between $1.25 and $1.28 a share.

They immediately sold these 300,000 new shares at either $1.70 or $1.71 a share and shortly afterwards Ms Withers resigned.

At the same time, managing director Hugo Venter exercised 100,000 options at $1.27 and $1.28 a share and immediately sold his new shares at $1.70 and $1.74 a share.

After the sale of New Zealand China Clays, Bendon has an extremely strong balance sheet with virtually no long-term debt and cash of $24 million.

Its entire product is now sourced from overseas manufacturers and it has a 50 per cent market share in New Zealand and 25 per cent in Australia.

Trading conditions are difficult in both markets but the company is launching its Elle Macpherson Intimates range in Britain in August/September.

Directors are confident that they have the product and financial resources to be successful in Britain but they are not putting their money where their mouth is.

Investors would be far more confident if the five remaining directors held more than 18,750 shares between them and had not sold a net 290,000 shares in the past 13 months.

* bgaynor@xtra.co.nz