SMELLIE SNIFFS THE BREEZE: Intimate Disclosures

SMELLIE SNIFFS THE BREEZE: Intimate Disclosures

By Pattrick Smellie

Feb. 26 (BusinessWire) - It was a week for divulging secrets.

Phil Heatley: - Basically, I have a confusing wallet. I'm not a details person. I've got really no idea which credit card I use most of the time. All too believable. That's what it looked like, not that I know Phil Heatley.

What about listed companies? A blizzard of earnings results raining like leaves upon business journalists from companies listed on the various equities, debt and alternative markets overseen by listed company and exchange operator, NZX Ltd. Some, like OceanaGold, write press statements that are nonsense and provide 33 pages of detailed accounts. Others tell stories on the numbers that would challenge the best of us to understand them.

Most have contained costs and ridden a terrible six months at the end of 2008, followed by an anaemic bounce-back in the last half of last year. Who know what that portends?

Perhaps an advantage of everyone reporting their earnings at once is that you see the tricks and variability that might not cohere if these things were popping out randomly.

SOEs, in particular, have a long way to go. They have been told to start disclosing their affairs like listed companies. All part of the part-privatisation agenda that Key will include in next year's re-election manifesto. For now, most SOEs don't know what reporting profits means. In fact, what a shambles!

At least the dessicated selection of NZX-listed companies reporting over the last fortnight provide balance sheets, profit and loss declarations, and notes to the accounts ranging from scant, to obscure, to surprising and actually, mostly, informative.

Not that the NZX itself has covered itself in glory: three "clarification" statements in three working days trying but failing to clear up the confusion about how it sets the NZX 50. This was a notable, unnecessary "own goal" this week. It may well be that standard global practice is to charge for indices, but if that means some people trade a share up by knowing early that it's going into the index, then that's rotten.

That's what it looks like with the odd string of emails that informed various geeks, including back office staff at news agencies, that Allied Farmers would join the NX50 - a notification rescinded just four days later. A 23% jump in the share price when the "geeks" heard about it, and the 11% fall in the Allied Farmers share price when they heard it was no longer the case is an observable phenomenon.

That looks like it needs fixing.

A group of fee-paying brokers should not be informed of likely index changes so they can buy ahead, unless the view is that a little bit of insider trading is OK. This is what NZX seems to argue when it makes the perfectly valid point that ordinary punters have to use brokers to trade, so they rely on their brokers to tell them when to trade. Or words to that effect.

Yes, information sellers globally provide indices by subscription. But even if the stock is a bit of a penny dreadful, which is probably charitable in the case of ALF, an active market requires trust. NZX has failed to provide that in this instance.

In fact, it would be hard to imagine a situation that would make it more apparent that NZX wants to be shot of its current regulatory responsibilities - in line with a key recommendation of the Capital Markets Development Taskforce, to which NZX CEO Mark Weldon belonged.

If he was selling the NZX 50 while some other trusted institution was making the rules about its distribution, would he have a problem? Of course not. In fact, that is the sweet spot for the NZX "going forward." as they say.

From the Allied Farmers episode, it's possible to conclude that recommendations that the Securities Commission, Companies Office and the regulatory arm of NZX should merge to create a super-regulator would seem to be advanced by the ALF snafu, even if Weldon didn't seek it.

In the past, market-moving information was restricted by the capacity to deliver it. Now that it is available on-line, real intelligence is getting harder to find as it becomes democratised information - the great leveller. The reality of trading exchanges today, unless they enjoy government protection, is that the old wealth available from inside knowledge isn't there anymore.

That is Weldon's challenge, and explains why he is trying to build a media as well as a trading platform company. Valuable content in information markets remains valuable, but the means of its transmission is changing, and the degree of value is falling. Just ask a newspaper owner.

(BusinessWire)

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