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NZX review: changes loom for small cap stocks

NZX review: changes loom for small cap stocks

ICT companies seeking an NZX listing may face new requirements, if NZX survey results hold sway

Changes loom for the NZX as it reviews its listing rules.

Changes loom for the NZX as it reviews its listing rules.

A survey of NZX market participants has revealed strong support for changes to the listing requirments of small cap stocks.

The results, which could affect new technology listings, show participants strongly favouring requirements for a minimum of 100 shareholders before listing and for at least 20 per cent of shares to be floated for the public.

According to findings, 68 per cent of respondents favoured the minimum shareholder number threshhold while 92 per cent favoured the free float proposal.

The NZX struggled in 2017 with a dearth of new listings, a seemingly moribund alternative market, the NZAX, and the sudden departure of major tech stock Xero, prompting the current review.

In addition, 58 per cent of respondents supported more flexible corporate governance requirements for small and medium sized listings.

A suggestion that small caps stocks should be required to report quarterly on cash flow, however, was opposed by 64 per cent of survey respondents.

The survey also revealed support for a reduced "spread" requirement for larger listed stocks, from the current requirement of at least 500 shareholders to 300, with 61 per cent of respondents favouring that proposed change.

In its submission, Business NZ said moves to deepen New Zealand's capital markets that take account of the practicalities of SME versus larger issuers "represent a positive step".

Business NZ noted there are currently alternative ways SMEs can raise capital outside a fully regulated environment, including private equity and venture capital.

"We consider new capital raising options and options for seeking secondary market liquidity should not constitute a zero sum game," the organisation said. "Instead, there should be a variety of options available so SMEs are able to select the capital option that best suits them. 

"Some will prefer a more regulated environment and others a more flexible environment reflecting the business needs at that time. An updated market structure should complement, rather than control the capital raising market."

BusinessNZ said it was open to an NZX proposal of merging the NXT and NZAX - often the destination for small cap tech stocks - given the benefits this has for SME issuers in terms of visibility and access to capital.

"However, we do not believe NZX has identified the key barriers to listing, nor provided supporting evidence that the listing rules themselves are a key problem," it said.

A number of other reasons have been given for the low number of listings – including cost of the IPO process itself, a lack of interest or support from financiers in the smaller end of town, better returns from overseas trade sales or the ASX as an alternative."


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