The NZX could see a flurry of listed investment companies (LIC) heading to the exchange under proposed new rules, according to Hamish McDonald, general counsel and head of policy.
McDonald said the NZX was “keen to engage” with the market on bringing more LICs to the local bourse, which is well underweight the sector compared to offshore exchanges such as in the UK and Australia.
The UK has a long history of listed investment trusts (some of which are dual-listed on the NZX) while the ASX has seen a boom in the LIC market over the last couple of years with over a 100 funds now available.
“The indication is that there is demand here for [more LICs),” McDonald said. “And it would be good to see more LICs on the NZX – it would add to the market.”
Last week the NZX released the fund proposals as part of its consultation on broader structural reform that would see, among other items, consolidating the current three listing boards into one and streamlining rules for listing debt, funds and other financial products.
“The current rules are not operating effectively for the listing of funds (although some are corporate structures which are treated as any other equity issuer) so we propose to introduce special purpose rules,” the NZX consultation paper says.
As well as the UK dual-listed investment trusts, the NZX hosts just a handful of LIC-type vehicles including the Fisher Funds-managed Marlin and Kingfisher products.
McDonald said while funds can list under existing NZX rules they require a host of clunky waivers to operate.
“It’s not as easy as it could be for funds to list on the NZX,” he said. “We have looked at what bespoke set of rules other regimes use for listed funds.”
While the NZX could adapt some offshore regulations, the consultation document says managers licensed under the Financial Markets Conduct Act (FMC) “should meet most of the primary eligibility requirements which would be expected for a listed fund because there will be a requirement to register a Statement of Investment Policy and Objectives (SIPO)”.
The NZX is seeking feedback on how the listed fund rules should incorporate:
- Disclosure of investment policy – including investment objectives, proposed asset allocation and approach to risk diversification;
- Disclosure of portfolio composition;
- Distribution policy;
- Details of the investment manager; and,
- Details of the supervisor.
Other questions under consultation include: “Should a separate approach be taken to the listing/regulation of active and passive funds? Or open and closed ended funds?”
McDonald said the NZX was interested in testing market demand for a local version of the ASX mFunds, which provides a trading platform for unlisted managed funds.
“We want to deliver outcomes,” he said. “If the market wants an mFunds type platform we will do it.”
The NZX is also looking to bolster its listed debt offerings, including wholesale issues and niche areas such as ‘green bonds’.
“[Listed debt] in NZ is under-developed and we want to continue to build our recent growth in this area,” McDonald said. “We expect there will be increasing demand for debt products like green bonds.”
He said with listed NZ energy companies boasting generally impressive renewable credentials they could issue debt – as Contact has recently – that meshes with the growing demand from institutional investors for socially responsible investment (SRI) options.
“SRI is definitely getting momentum with NZ fund managers,” McDonald said.
The NZX consultation also floats the idea of listing offshore ‘depository receipts’, which would give local investors direct exposure to global companies – and potentially promote the New Zealand exchange as a leading global market indicator.
“NZX is in the unique position of being the first market in the world to open for trading each day,” the NZX paper says. “This provides an opportunity for trading in depository receipts of overseas listed securities prior to other markets opening, and has the potential to provide more investment opportunities to New Zealand investors.”
McDonald said depository receipts were a “significant part of other markets” and could do well in a NZ setting.
“It would be great if the first thing [offshore investors] did when they woke up was to look at the NZ market,” he said.
Feedback on the current proposals is due by November 17 this year with a follow-up consultation slated for April next year. Any new rules would be in place by the last quarter of 2018 with a transition period flowing through the first half of the following year.