More financial products such as managed funds could list on the NZX under rule tweaks up for consideration by the stock exchange operator this year.
The ‘NZX regulatory agenda’ for 2017 published last week flags a more flexible approach to investment products as part of a “proposed review” of listing rules this year covering the bourse’s main board and debt market.
“Recent trends in financing, and changes in New Zealand’s securities legislation, has seen an increasing variety of financial products available for investment, options available to issuers to offer financial products, and distribution channels for financial products in the New Zealand capital markets,” the NZX document says. “…From a policy perspective, NZX wishes to ensure that investors have access to a diverse range of listed financial products available for investment.”
The NZX already houses a number of listed investment companies both of domestic and offshore origin (including the popular UK investment trusts) as well as its own menu of exchange-traded funds.
But, according to the NZX paper, “further tailoring” of the listing framework could attract more “equity, debt and managed investment scheme products (ie unit trusts, funds)” to the exchange.
The listing rule review would also examine ways to simplify the process for compliance purposes, align with international regimes and reflect the soon-to-be-adopted refurbished NZX corporate governance best practice code.
Elsewhere in the regulatory update the NZX highlights key technological developments deserving closer scrutiny, namely:
- Algorithmic and high frequency trading;
- ‘Dark pool’ arrangements, or direct off-market trading, usually between market participants and institutional investors; and,
- Direct Market Access (DMA), which allows clients to directly access and place orders in NZX’s trading system.
“The use of these technologies continues to be an area of interest for NZX, consistent with a broader international focus on the potential impact of technology on market orderliness,” the regulatory paper says. “In particular, regulatory concern focuses on the potential impacts of trading technology not operating as designed, or operating with inadequate oversight.
“Those scenarios could potentially result in abnormal trading, and consequently pose a risk to market efficiency and integrity, as well as the transparency of market liquidity and the price discovery process.”
In particular, the NZX says it will follow-up on 2016 recommendations to institute “compliance monitoring plans” for DMA arrangements.
DMA featured as a factor in the yet-to-be-resolved alleged market manipulation charges levied by the Financial Markets Authority (FMA) against Milford Asset Management portfolio manager, Mark Warminger.
“NZX will continue its approach of proactively working with participants to identify and implement best practice improvements,” the update says. “NZX will continue to collaborate with the FMA on the inspection programme in 2017, given the FMA’s role in oversight of brokers under the Financial Advisers Act 2008.”
Last week the FMA also published its 2016 ‘Conduct outcomes report’, which, among other items, the regulator’s rationale for bringing the Warminger case.
“To protect the integrity of New Zealand’s markets it is essential that all trades are legitimate and reflect genuine supply and demand,” the FMA document says.
“Traders on our retail and wholesale markets need to understand and abide by the legal rules for trading. Traders also need to be confident that others are working within the same set of legal rules and obligations.”
FMA v Warminger proceedings concluded in the Auckland High Court last October with Justice Asher reserving his decision.
The NZX update also reveals the exchange is looking to extend regulatory tentacles across the Tasman with plans to certify as a foreign regulator in Australia under the Mutual Assistance in Business Regulation Act (MABRA).
“Certification under MABRA will enable NZX to directly request ASIC [Australian Securities and Investments Commission] to gather information, documents or evidence on NZX’s behalf and to disclose that information to NZX,” the
“… NZX considers this an important initiative, given the continued growth of DMA trading and participation of Australian-based participants and investors in NZX’s markets.”
In a statement, NZX head of market supervision, Joost van Amelsfort, said the exchange operator would commit “significant resource to ensure the integrity of our markets is maintained”.