This review has been underway for some time, paying particular attention to those elements that will have a direct impact on market integrity and liquidity. The aim has been to create the optimal platform for future growth for NZSE, its stakeholders and the New Zealand capital markets.
To this end, NZSE's infrastructure review has incorporated the following areas:
- Market measurement, including the introduction of new indices and rationalization of current indices family;
- Legal & regulatory framework, including proposed new compliance and enforcement framework, a corporate governance framework and a new continuous disclosure regime;
- Market Structure, including the elimination of the NCM, future introduction of the AX market and future relaunch of the Debt market;
- Trading Microstructure, including increase in tick size and introduction of call auctions for the AX market;
- Our own governance structure, including demutualization and future listing on the NZSE; and
- Internal re-organisation, including the recruitment of a talented management team, and a shift in resourcing from third party contracting to in-house intellectual talent.
All of the above initiatives are on track to be completed and implemented by the third quarter of 2003. The final plank in the completion of this strategic review concerns market infrastructure, specifically market trading hours and pricing for NZSE services and products.
Trading Hours
Changes to NZSE trading hours were introduced 18 months ago on a trial basis. This trial has now been evaluated in the context of the wider strategic review and, after much consultation with industry leaders, NZSE would like to announce the following changes:
- Market Open will move from 9:00 AM to 10:00AM
- Market Close will move from 4:00PM to 5:00PM
The new hours will come into affect from July 1 2003 and will be reviewed in January 2004. The results of this review will be released to key stakeholders at this time, and consultation will be taken prior to any further recommendations on outcome.
The recent strategic review clearly showed that a 9:00am opening does not add to market volumes or liquidity and creates undue pressure within institutional firms.
In addition, NZSE will work on encouraging companies to make announcements, particularly profit announcements, prior to 8:30am to enable a more informed market response to these announcements when trading commences.
"The move to a 5:00pm close was driven by the need to maintain pricing power and price discovery within the New Zealand market" says Geoff Brown, NZSE Markets Development Manager. "We believe that this new time will maximize the volume of trades in New Zealand companies on their home exchange and, as a result, expect it should increase liquidity in the New Zealand market."
"We received substantial feedback and support from the broking and fund management communities in coming to this decision and feel confident that we've reached a solution that will better serve the interests of all market participants. We realize there will be some initial disruption and we've endeavoured to limit this by listening to all industry concerns and incorporating them into the decision making process," said Brown.
Pricing
Growth was a key mandate to come out of NZSE's demutualization in October 2002 and, like any commercial organisation, NZSE needs positive earnings to fund investment and growth. The strategic review identified the current pricing structure as one of the main inhibitors to earnings generation and growth. It also identified NZSE's pricing structure as anomalous with international best practice and inconsistent with nearly all global value based pricing models.
Mark Weldon, NZSE CEO, said that the historical price structure was out of step with international standards and had meant the Exchange was possibly the only global exchange to make a loss on its trading operations. Rectifying this, recovering costs, charging for value and using pricing to incent the right behaviour was critical.
"The drive to be a low cost market operator forced the Exchange to provide many of the services it offered for little or no cost, which, moving forward, would inhibit the organisation's ability to develop and grow," said Weldon. "We're moving to a more internationally accepted model where services are priced on the value they provide and the user's actual volume of activity in the marketplace. It also acknowledges the fundamental role the Exchange plays in New Zealand's capital markets and the value of its technology in providing those markets."
A new pricing structure, the first in 12 years, has accordingly been developed. The new pricing regime has been designed to provide consistent, transparent and equitable pricing across all constituent groups and will be introduced on July 1 2003. Minimal changes will be made to Listed Issuer pricing.
Key pricing changes include:
- Revision of transaction pricing to encourage on-market trading, increase price discovery and align us with other exchanges around the world. This includes the complete elimination of all per order charges (currently 10c per order), an increase in the base trading charge from $0.60 to $1.00 per trade, an increase in marriage fees from $1.20 to $6.50 (to disincent internalization and force trades on market), and the introduction of a value component of 0.15bps (capped at $20 for trades over $1million);
- Rationalisation of infrastructure, telecommunications, surveillance, audit and enforcement fees to recover costs, standardize procedures and bring in-house, ensure compliance meets best practice and minimize the risk of failure to the market;
- Introduction of infrastructure and transactions fees for registries
- Decrease in membership fees, portions of the infrastructure charges and order fees;
- Revision of overseas issuer listing fees;
- Simplification of main board listing fees and adjustment of the minimum fee.
A finalized fee schedule will be distributed to all stakeholders within the next month.
