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Chapman Tripp Supports Consolidation of NZX Boards

“We were very pleased to see NZX’s announcement that it is considering consolidation of the junior boards into the main equity board in New Zealand,” said Chapman Tripp partner Rachel Dunne.

“We are encouraged by this early sign that new CEO Mark Peterson intends to take bold and active steps to revitalise the future of NZX and our capital markets.

The firm’s discussion around the future of NZX’s equity boards coincides with the NZX Annual Shareholders’ Meeting today.

“As we highlighted in our publication back in February this year, there is a threshold question about whether or not the New Zealand market is large enough to sustain three equity boards.”

The NXT has – by NZX’s own admission – not performed as expected, Dunne said.

“It’s failed to really have the support of the broker community in New Zealand. And the NZAX is in limbo. It is closed to new listings – so there are 18 companies that are effectively stranded on there.

“NZX has signalled that it is planning to consult with the wider market from the end of Q3 this year on the potential consolidation of the boards, which we strongly support as an initiative. Consultation with the market is going to be vitally important to the success of the transition. And also to ensure that, once the boards are consolidated, smaller cap companies can successfully list on the NZX Main Board.”

One of the challenges that NZX is going to face with the consolidation of the boards is ensuring that it can happen in a way that is as pain free as possible for those smaller cap companies that are currently listed on the NXT or the NZAX, Dunne said.

“We would like to see the transition to be a compulsory move, so issuers cannot choose to remain on those two boards. Instead, they are effectively shut down as promptly as possible.

Chapman Tripp also suggests that the NZX should implement the transition with a grace period, to allow those smaller cap companies a reasonable amount of time to come up to speed and ensure compliance with the Main Board requirements, she said.

“There has also been a lot of talk about ensuring that smaller cap companies have a governance-light approach to life, so they’re not overburdened with the compliance costs of listing.

“That will be an interesting area for NZX to consider, because there are some features of the smaller junior boards, which we believe should be carried through for small cap companies on the Main Board, including the use of the pre-break announcement regime, some lighter governance requirements in terms of board sub-committees and also differential thresholds for transactions like related party transactions that require shareholder approval.

“In summary, we think this is the first of a series of significant steps that we’ll see NZX’s new CEO Mark Peterson take in an attempt to invigorate New Zealand’s capital markets.”


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