NZX proposal gives up on small cap stocks

NZX will ditch its small-cap markets and introduce a higher minimum capitalisation in proposed changes to listing rules, which would also let firms file pared-back first-half financial information.

The stock market operator wants feedback on its second round of consultation as it overhauls its rules and processes in an effort to revive investor interest in the local market. NZX had already signalled plans to drop its NZAX Alternative Market and NXT markets and had toyed with the idea of allowing easier disclosure obligations for the small end of town to encourage them to list.

However, submitters in the first consultation didn't think a two-tier disclosure system would attract "significant numbers of additional listings" and that it was "important to ensure that appropriate settings are in place so that issuers are of sufficient scale to list," the new document says.

NZX now plans to increase the minimum market capitalisation to $15 million from the current $5 million level, while lowering the free float to 20 percent from 25 percent and reducing the required number of investors to 300 from 500.

The Wellington-based company has struggled to find a way to encourage smaller companies to list on the stock exchange. It launched the small- to medium-cap NXT market in June 2015 intending to phase out the unsuccessful NZAX, but the new entity has attracted only a handful of listings. Now NZX is proposing folding the smaller markets into the main exchange and wants to phase in the changes to accommodate smaller issuers. These will be able to opt-in from January 1, 2019 but won't have to comply until July 1.

The stock market operator also proposed to drop the need for a separate half-year report, letting issuers publish preliminary financial statements. However it also wants disclosures to extend to constructive knowledge as well as actual knowledge, meaning it could "consider the information that a reasonable director or senior manager ought to have known, when determining whether an issuer has complied with its continuous disclosure obligations".

NZX plans to keep the minimum number of directors at three but will expand the residency requirement to be met by Australian directors. The stock market operator plans to tighten up the placement threshold to 15 percent from 20 percent, while keeping the major transaction threshold at 50 percent of a company's market value.

The stock market operator also examined the debt market, proposing to drop the free float and spread requirements for debt issuers, while funds would attract the same spread, free float and market capitalisation criteria as equity issuers.

Submissions close on June 8, with final decisions expected to be made in the third quarter of this year.

NZX shares were unchanged at $1.08 and have declined 3.6 percent so far this year.


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