New Zealand Exchange Limited (NZX) established the NZAX Market nearly three years ago with the express objective of making it easier and cheaper for small- to medium-sized companies to raise capital through the public markets.
Since its establishment in 2003 the NZAX Market has grown from 12 to 28 companies. Market capitalisation of the NZAX was $219 million in November 2003. This has now grown to $657 million. As well as the Initial Public Offering process, NZAX Listed Issuers have utilised the ability to raise additional capital through secondary offerings.
Consultation Feedback
In the run-up to the NZAX's third birthday, NZX has taken stock of the market via extensive consultation with its stakeholders including NZAX Listed Issuers and Sponsors who bring them to market. The consultation process is evidence of NZX's determination to continually refine the various markets to meet the needs of NZX Listed Issuers.
Broadly, the results of the NZAX Market consultation are as follows:
- All NZAX Listed Issuers have chosen to list as a means of initial and subsequent capital-raising. Consultation found that relatively few have a clear understanding of the distinctions between the NZAX rule structure and that of the NZSX. How Listed Issuers can use that rule structure to better meet their business objectives has not been made sufficiently clear to Listed Issuers by NZX, the Sponsor network and the current rule set.
- Raising capital via the NZAX Market is widely viewed as an efficient and cost effective means of funding further growth.
- NZAX Listed Issuers are largely comfortable with the main tenets of the NZAX Listing Rules as they stand, and there is little support for change of these. The belief is that they provide the right level of investor protection and corporate governance standards that should be afforded by public markets.
- The differentiated trading structure for the NZAX Market (e.g. opening hours, tick size) was not deemed as adding to liquidity in this market.
NZX Head of Products Geoff Brown said, “Our consultations with NZAX Listed Issuers and Sponsors in particular have revealed that they are largely comfortable with the foundation of the market being continuous disclosure and governance requirements within the rules.
NZX Initiatives
“Our first action will be to ensure the distinctions between the NZSX and NZAX are well understood so companies can use the NZAX Market structure to their own and their shareholders' advantage. Our aim will be to identify a core group of Sponsors who can work more closely with companies to explain these distinctions and assist companies to list on the NZAX Market,” said Brown.
With the review of the NZAX Market concluded and no major rules changes deemed necessary, NZX will begin the process of amending the NZAX Listing Rules to replicate relevant amendments made to the NZSX/DX Listing Rules on 10 May 2006. Details of these replicated amendments have been signaled to the market previously.
To ensure NZAX Listed Issuers understand the range of structural and regulatory distinctions, NZX will host seminars for this group, a service that was offered to NZSX Listed Issuers earlier this year. Based on the success of the recent NZX SciTech seminars, NZX will continue to explore ways to increase the profile of NZAX Listed Issuers.
A future amendment for the NZAX Market is a change in minimum tick size from two cents to the tick sizes that apply to the NZSX Market. For smaller companies whose share price is, say, 10 cents, a two cent minimum tick size can have a 20% impact on share value with only moderate transaction activity. Changing the tick size to the NZSX Market regime will remove that enforced spread.
Trading hours for the NZAX Market currently differ from the NZSX, at 11am to 4pm. In the future these will be extended to be the same as the NZSX. In addition, pre and post market activity will also align with the NZSX regime, with an opening call auction the same as the NZSX (not anonymous) and no closing call auction. These market trading initiatives will be introduced on 2nd October 2006.
