Column: Will the NZSE be the beggar or the chooser?
Pattrick Smellie wonders whether the NZ Stock Exchange is going to be a bride abandoned at the alter.
Tuesday, July 4th 2000, 12:00AM
Transaction costs at 60 cents per trade are impressively low. As chairman Eion Edgar told an Exchange dinner on Monday, July 3: "By global standards, the NZSE is a low cost business to deal with. The costs of running the NZSE are very, very modest compared to most of our peers around the world."
In a calculated shot across the bows of both the ASX, which seems to assume that the NZSE will inevitably collapse into its embrace, and "armchair critics who believe the Exchange is dying a slow death", Edgar says that no merger that threatens the benefits of low transaction costs to investors will be pursued.
"The board's decision will be driven solely by our belief in a direction that enhances the ability of the NZSE to perform its function as an efficient securities facilitation business," he said.
However, Edgar was not only claiming credit for an efficient operation. He defined the exchange's other core function as "helping companies raise capital".
It is here that he had too little to say.
Yes, the New Capital Market is a good initiative, and long may it prosper.
However, it is arguably late and insufficient. Much of the most interesting new capital-raising in New Zealand in the last two or three years has been through private placement, often involving the new generation of venture capitalists emerging in Auckland, and occasionally by listing in other countries.
Such investors simply don't need the NZSE.
The late June Qantas New Zealand deal is one of the highest profile examples. A group of seriously wealthy New Zealand and Australian families, investment vehicles, and individuals was brought together by Auckland merchant banker David Belcher, of Clavell Capital.
They get an established domestic airline with staff, technology, and plane leases all favourably restructured at previous owner News Ltd's expense. They hook it to a global brand and the power of the oneWorld global alliance.
And not once do they have to face shareholder activist and known curmudgeon Max Gunn at an annual meeting, let alone disclose anything they may be planning to anyone.
Admittedly, the NZSE might never have expected a look-in on this deal, but the same cannot be said of many of the other new economy, bio-technology and other innovative business ideas which have found ready capital available in venues other than the stock exchange.
There are many factors making the exchange less attractive to investors than in the past, and many which the NZSE itself has no power over.
New Zealand's economic performance remains patchy and Edgar rightly challenges the assumption that being part of a larger securities exchange would change share price performance by companies whose fortunes are dictated by economic conditions in this country.
However, other issues, including the NZSE's image, reputation, and capacity to innovate, are in the exchange's control.
Yet Edgar and the exchange's increasingly defensive managing director, Bill Foster, have until recently done or appeared to do very little to address those issues.
The engagement of PR firm Shandwick to sell the exchange's message as a low cost, efficient service provider, is one sign that they are starting to listen, and to realise that the exchange has as many political as it has commercial issues to grapple with at present.
As a result, much more will be heard as a result about how New Zealand's tradition of high dividend yields masks top 40 performance and drags down capital indices. A more aggressive communications strategy may also see the NZSE finally get on the front foot over the entrenched Australian view that the New Zealand market is not only under-regulated, but poorly so.
Yet for all that, there is still an air of complacency about the NZSE's current strategy. Securities markets are at the forefront of globalisation. Their listed companies are the trail-blazers of the phenomenon. If there is something wrong with the logic that equities markets will inevitably follow suit, the NZSE needs to work out what that flaw is and articulate it far more skillfully and soon.
It has let public and market opinion drift against it for far too long and risks being caned if the ASX and other potential partners turn their attention to bigger opportunities, leaving the NZSE as beggar rather than chooser.
Thankfully, concrete developments may now be in sight.
While no proposals currently exist from any exchange, Edgar says he hopes a single, firm proposal will be ready to present to members of the exchange by the time of its September annual meeting.
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