Provisionally known as AX, this "second" market is purpose-designed to appeal to both small and medium-sized growth companies with a total value of between NZ$5 - $30 million and larger, less traditional companies (such as Co-ops).
New Zealand Stock Exchange Chief Executive Mark Weldon explained the AX market would be divided into high-growth "Type A" companies and stable but non-traditional "Type B" companies.
"Both types of company are considered pivotal to New Zealand's growth. They also offer exciting new avenues for investment.
Weldon said some of New Zealand's most promising enterprises found the Main Board too expensive or intimidating and often ended up selling to foreign firms.
"We expect the AX to remedy that. These companies are critical to the future of New Zealand's economy and we must retain them."
Weldon said many smaller companies in New Zealand had limited options for raising capital, while other corporations (e.g., Co-ops, SOEs) had unusual corporate structures by international standards. Also the country's economic structure was quite different from the larger industrialised economies with which New Zealand was usually compared.
The NZSE has already set targets for the AX, which will have its own indices.
NZSE predicts listing 50 companies on the AX (not counting transfers from the Main Board) and raising about NZ$250 million, substantially increasing the liquidity for this neglected corporate market, within the next two years.
To concentrate liquidity, it is proposed that the AX operate on shorter hours than the Main Board, with active trading occurring between 1pm - 4.30pm.
The proposed AX market will offer local companies many advantages over the Main Board, including:
- Lower barriers of entry to capital markets in terms of cost, time and effort: The NZSE is working closely with the Securities Commission to achieve a reduced cost structure that satisfy's disclosure needs. Moreover, AX companies will have access to low-cost legal advice from the NZSE's specialist AX staff.
- Choice: The AX will appeal to companies with variable main goals such as raising capital, establishing or improving liquidity, increasing transparency to shareholders, increasing the company's public exposure, building a brand, reducing cost of capital, or some other legitimate purpose.
- Greater flexibility: Companies will be able to design their own listing style, according to need. For instance, a cooperative with a wide shareholding (e.g., 10,000+ shareholders) will be able to release liquidity without breaking up the ownership group or maintain a defined shareholder group, and provide a trading facility that offers transparency to shareholders. The founder of an industrial company will be able to sell half of the shareholding, while accessing much-needed capital and raising corporate profile.
- Create exposure for investors to previously unavailable companies: As well as listing new companies, the AX will develop instruments such as ETFs and forwards to facilitate trading by the domestic and international investment community, including "Type B" restricted companies.
- Long-term opportunity: Once AX companies get too big for the junior market, they will be encouraged to jump to the Main Board.
All applicant companies must pass a rigorous review of an AX admission panel "the AX will offer only quality companies to market," said Mr. Weldon. A specific and low cost surveillance body will be established to handle all matters such as decisions and complaints.
To read the proposal.please click here.
