NZX has commenced a review of the NZX Main Board/Debt Market Listing Rules (Listing Rules) which seeks to modernise the current Listing Rules and future-proof them for evolving capital markets. A discussion paper was released on 27 September 2017 and can be found here. The closing date for initial submissions is 5.00pm on Friday 17 November 2017. Any questions or comments can be directed to any one of our Russell McVeagh team below.
Russell McVeagh welcomes this review and will be providing its own feedback to NZX. We look forward to collaborating with any clients that would like to have their views included in our submissions.
The Listing Rules are in "catch-up" mode with the recently implemented Financial Markets Conduct Act 2013 (FMCA) which created new requirements for issuers and paved the way for a broader range of financial products to be offered in NZ's securities market. NZX is seeking to ensure that the Listing Rules and the FMCA are consistent and that sufficient flexibility exists within the Listing Rules to accommodate this broader range of financial products.
With only seven IPOs having been undertaken on the NZX Main Board in the last 24 months, contrasted by a relatively high number of private exits, the Listing Rules review is also being driven by a desire for increased participation in the NZ market. With the right balance of eligibility and compliance requirements, we believe there is scope for a greater number of private companies to consider public listing.
With a review not having been undertaken since 2003, this is a prime opportunity for issuers to express their views on the current Listing Rules. Un-listed company involvement in the review will also be important to create a listing framework that appeals to a greater number of pre-IPO companies.
What are the key objectives of the review?
The key objectives of the review include:
- reducing complexity with the current three equity market structure and build scale in the Main Board;
- enhancing investor protections;
- simplifying the current Listing Rules so that they are easy to navigate and use;
- reducing the cost of capital for issuers, including the removal of unnecessary compliance costs;
- accommodating the listing of a broader range of financial products and issuers, with fit for purpose rules for a varying range of different issuers; and
- improving access for foreign listings.
Proposed new structure – how will this work?
A single equity market
Through combining NXT and the NZX Main Board, NZX has suggested creating a single equity market and a single set of more flexible rules. Differential standards would apply for different types of product classes and smaller issuers (aligning NZX with international markets such as LSE in the UK). As the feedback has been that NXT is not meeting the needs of smaller issuers, these changes seek to reduce the complexity and compliance costs associated with listing, thereby increasing the likelihood of more SMEs listing (private capital raisings currently seem to be more attractive).
"Premium" vs "Standard" Issuers
Issuers would be able to elect the level at which they comply with the Listing Rules. "Premium Issuers" would fully comply with the Listing Rules and, in doing so, NZX believes issuers would benefit from the increased status and prestige that comes from full compliance, whereas "Standard Issuers" would elect to only comply with certain requirements that better suit their size and stage of development. This approach aligns with the flexible approach introduced by the NZX Corporate Governance Code's "comply or explain" regime that is tailored to different issuers. NZX is seeking feedback on the appropriate alternative settings for Standard Issuers.
Specific rule setting
In order to simplify a set of rules that are often complex, NZX proposes to divide the Listing Rules into four basic elements:
NZX is also seeking feedback on areas of the current Listing Rules that require amendment or are not operating effectively (i.e. areas where standard waivers are often sought and granted). A high-level summary of NZX proposals in respect of equity and debt issuers, and funds can be found here.
Overall, we support the majority of proposed amendments to the Listing Rules – they are sensible proposals that will encourage listing and reduce unnecessary compliance costs. For example:
- Reducing the timeframe for submission of same class or quoted financial products (QFP) offer documents will help issuers get QFP offers to market quickly. In our experience, although the current 10 working day NZX review period has not been problematic for QFP offers, the proposed reduction in review time may encourage more offers by listed issuers and streamline the offer process.
- Introducing a listing platform for wholesale debt instruments will provide a New Zealand listing alternative for wholesale debt issuers, providing more options for issuers and more transparency for wholesale investors. This would also bring NZX in line with ASX, which already provides a wholesale listing platform.
NZX is also considering how to promote NZX's debt market through non-rules based measures. For example, by promoting issuers who have "green bond" programmes. We recently published an article on green bonds which can be found here.
Managed investment schemes
Bespoke rules are also being considered for managed investment schemes. NZX acknowledges that the licensing regime for managed investment funds introduced under the FMCA already provides for a number of core investor protections, together with frontline regulation from an external supervisor and with oversight from the FMA.
Given that many aspects of any proposed special purpose rules for funds will be covered by the FMCA, the NZX is seeking submissions on any areas of the Listing Rules which should supplement the current licensing and periodic reporting requirements under the FMCA. This would reduce compliance complexities and the number of waivers required in order to list and address on going compliance. Such amendments will promote a broader range of listed investment vehicles to provide capital for growth assets.
Specific rule setting is also being considered in respect of:
- Reverse and backdoor listing – currently, a full compliance listing is not required for reverse listings. NZX proposes to treat such transactions as new listings, which would require full compliance (like any initial public offer). Although a full compliance listing is not currently required, in practice a full Product Disclosure Statement is often required to be prepared under the FMCA and is reviewed by NZX. We are therefore of the view that the proposed change would be unlikely to lead to any significant additional compliance requirements.
- Overseas Listed Issuers – NZX is considering following a similar approach to ASX in respect of issuers that have a primary listing on another recognised stock exchange - as long as the issuer is in full compliance with the requirements of its home exchange, the issuer will only be required to comply with a limited number of Listing Rules (thereby reducing compliance costs and enabling more listings on NZX).
The discussion paper also considers whether there is demand to list depository receipts or other alternative financial products. As the FMCA paved the way for a broader range of financial products, NZX wants to ensure that corresponding flexibility is also built into the Listing Rules to support the ability to list these products.
This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.