Investment managers looking to list funds on the NZX could see costs shrink to about 10 per cent of current levels under new rules released last week.
Hamish Macdonald, NZX head of policy, said the revised listing rules offer a much simpler and cheaper path for funds to the share market than the previous regime.
“We’re excited at the potential,” Macdonald said. “During the consultation process we’ve already had enquiries from existing licensed fund managers about listing products.”
Essentially, the “bespoke” set of new listing rules for funds recognises managers licensed under the Financial Markets Conduct Act (FMC). Instead of a lengthy – and legally expensive – process of seeking waivers from NZX disclosure rules, FMC-licensed managers will be able to list funds from next January simply by shelling out the appropriate fee (and meeting technical requirements).
Macdonald said under the new arrangement, costs could be “about a tenth” of current fund listing expenses.
According to the new NZX fee schedule, initial listings costs range from $34,000 to $400,000 for closed-end funds (such as listed investment companies) with annual fees of between $16,000 to $79,000 based on assets under management. Meanwhile, open-ended funds – including exchange-traded funds (ETFs) – carry a $15,000 initial issuer fee plus $5,000 “per new product series” and ongoing annual fees (charged quarterly) of 3 basis points but capped at $75,000.
The rules also allow for ‘foreign exempt’ fund listings – based in regimes recognised by the NZ regulators – at initial costs of $15,000-20,000 and annual fees of $20,000.
Excluding the 23 NZX-owned ETFs, the local share market boasts only a handful of listed funds notably: six or seven UK listed investment trusts; and, three Fisher Funds-managed listed investment companies (LICs) – Barramundi, Kingfish and Marlin. The latest NZX data counts 35 ‘fund securities’ listed on the market.
In its paper explaining the new listing rules, the NZX says: “There are currently a relatively small proportion of listed funds on NZX’s Main Board.
“We have introduced tailored rules for these issuers which delivers an open architecture for the listing of a broad range of investment entities. The updated rules will significantly reduce the compliance costs for these issuers, while targeting protections which deliver value for investors. This is an area of the listed market which is under developed compared to global peers and presents a strong opportunity for market development.”
Macdonald said stock markets represented a natural distribution channel for fund managers. For example, in Australia the listed fund market is currently valued at about A$85 billion split about evenly between about 240 ETFs and 110 LICs.
He said the new listing rules would also make it easier for debt issuers, including so-called ‘green bond’ offers, to join the NZX.
Overall, Macdonald said the revised NZX market structure and listing rules should help revitalise the flagging local bourse. The restructure will see the current three-tiered NZX market consolidate under a single main board with flexible, size-based listing rules.
At the same time he said the rules have been simplified and refreshed to meet the needs of modern market players.
“We haven’t updated the rules for 15 years and a lot has changed in that time,” Macdonald said. “For example, the old rules still refer to faxes and telex machines – I’ve been around a while but I’ve never seen a telex machine.”
The rule book has also collapsed from a 320-page tome to a simpler 80-page document, he said.
“It’s much more user-friendly,” Macdonald said, “which you need in a document that is an important connection to our customers.”
But he said the new listing rules by themselves wouldn’t guarantee IPO growth on the NZX.
“It’s important to recognise that the NZX is just one part of a broader capital markets ecosystem,” Macdonald said. “We’re keen to do our part but we also need the rest of the ecosystem to work well to bring IPOs to the market.”
Over the 12 months to September 30, the number of NZX-listed equities fell 6 per cent to 141 while total number of securities (covering debt, funds and ‘other’) stood at 304, down 0.3 per cent year-on-year.