NZSE wants ownership limits included in bill

By DANIEL RIORDAN

The Stock Exchange wants an ownership cap of 10 per cent added to its restructuring bill before Parliament.

The exchange made its recommendation yesterday to the finance and expenditure select committee.

The NZ Stock Exchange Restructuring Bill, introduced to Parliament in February, seeks to provide a mechanism for the exchange's 278 individual and 41 member firms to convert from a mutual to a company - if they choose - which could then list on the exchange.

When the exchange first proposed demutualisation last year, some members and clients expressed concern that the lack of an ownership cap meant there was nothing to stop shareholders selling to anyone whose chequebook was big enough, effecting a merger or takeover through the back door.

These concerns were expressed against the backdrop of talks between the NZSE and the Australian exchange about merging, for which demutualisation would have been a necessary precursor.

The talks were called off several months ago after the parties failed to agree on terms.

Caps of between 5 and 15 per cent are relatively common overseas. The London Stock Exchange has a 4.9 per cent cap and the Stockholm exchange has an approval requirement for anyone wishing to exceed 10 per cent.

When the ASX demutualised two years ago it did so with restrictions on how many shares one entity could own - 5 per cent, soon to be lifted to 15 per cent.

NZSE managing director Bill Foster said the 10 per cent had been set because the exchange was small in international terms and 5 per cent was not a significant investment sum.

A lower cap would reduce the flexibility of the exchange to enter into beneficial equity-sharing arrangements with investors who might have expertise or investments that would develop the local capital market.

The 10 per cent cap would be contractual rather than statutory, and could be removed if 75 per cent of members voted to do so.

The exchange said it wanted full individual members and member firms to have an equal entitlement to the shares in the converted company.

The exchange also wanted the bill to be reported back to the House by July 24, which would allow it to pass through its final stages before September 5.

That would allow exchange members to consider the restructuring proposal at its annual meeting, normally held in August or September.

Demutualisation would require the support of 75 per cent of members entitled to vote.

The exchange also recognised the need to redefine its relationship with the market surveillance panel, which, if the NZSE lists itself, would be responsible for monitoring the exchange company's compliance with its own listing rules.