NZX Listing Rule Review Feedback Submission

Transcription

1 NZX Listing Rule Review Feedback Submission Question 1: Do you agree with the objectives of the review? If not, why not? Yes, we agree as the current structure with the three different markets (NZX, NZAX and NZT) is confusing for investors and is not attracting companies, particularly smaller entities, to list. Reasons for this include cost (both in getting a company listed and ongoing costs once listed) and the complexity of the listed regime. As you have noted, there is also a trend in some markets for companies to seek private investment as opposed to seeking this through a public listing. The review is not going to be worthwhile unless all regulators genuinely get behind the markets and actively undertake a PR exercise to market the markets as a viable alternative for early stage and more mature companies to realise their potential. Currently we are experiencing a net outflow of companies from the markets. Question 2: Do you agree with the proposed timetable and process for the review? If not, why not? We are happy with this. However, given the uncertainty about the class waivers for companies on the NXT and NZAX, we feel the NZX needs to reinforce publicly that the NXT is still open for business. The issues around the Market Maker also need to be addressed while the review is taking place. NZX has to reinforce that the NXT is a viable option for early stage and small cap companies to list, and the reasons for this view. NZX has to re-establish the confidence of the public and investment community in all the markets. Question 3: Do you agree that NZX should retain the current requirements under the Listing Rules, subject to addressing drafting issues, as the basis for the updated rules? The existing rules obviously provide the basis for the review but should not be sacrosanct. Those that are working well should be maintained, while others need to be amended or replaced. Our preference is one set of rules that are applicable to all companies with perhaps a few minor adjustments around spread requirements for smaller companies. Our preference is to do away with the KOMs regime and revert to continuous disclosure for all issuers. Question 4: Do you agree that NZX should adopt a modular approach to updated rules? If not, why not? A modular approach where there are a standard set of rules for all classes of issuers which can then be added too to make them fit for purpose is a good approach. This will ensure the underlying integrity of the market is maintained but give flexibility around the needs of different classes of issuer. Question 5. Do you agree with NZX s preferred approach of delivering an updated market structure via a single rule set with differential standards for equity issuers? If not, why not? We believe there should only be one market structure with all listed companies complying with a standard set of rules (base module) but with the ability to adopt additional suites of rules depending on the class of issuer. This

2 should give investors confidence in the underlying market framework while at the same time enabling listed companies to adapt a regime that works best for them. Question 6. Do you agree that NZX should have differential requirements for equity issuers? Yes, but with the proviso that all issuers comply with a base module set of rules. The only principal differential requirements should perhaps be around spread. 500 shareholders for a small cap issuer may be a struggle, as would the 25% free float in some cases. Small cap companies should be granted some fee relief also given their smaller size and scale of operations. Question 7. What criteria should be used to determine whether differential requirements should apply? We do not favour mandating criteria such as market capitalisation or index inclusion for selecting issuers as either Standard or Premium. This could prove problematic as companies move through different capitalisation bands or in and out of indexes. Companies should be left to self-select which category they want to list under having regard to their market cap and capital structure, number of shareholders and free float, for example. Question 8. What do you consider is an appropriate cut off to be considered a smaller issuer? As discussed in Question 7, we do not believe there should be a cut off. Companies should be left to self-select which category they want to come under (Standard or Premium). Investors and the market can then decide which category (or categories) they are comfortable investing in and this will ultimately drive company behaviour on which regime it adopts. Question 9. What branding should NZX use for separate equity listing categories? Standard and Premium are fine. Question 10. Do you agree that it is appropriate to have separate rule settings for debt and funds? Yes. However, there is no reason why the two regimes could not be incorporated into one set of uniform rules. The principal requirements for debt issuers should generally also apply to equity issuers. Question 11. Do you have any feedback on how to promote and facilitate the listing of funds, including MIS structures? Creating a framework and cost structure that makes it attractive for funds to list will be the best way to promote this. Question 12. Do you have any feedback on how to promote and develop NZX s listed debt market? The listed debt market is already well known and understood by investors. Question 13. What steps should NZX take to promote and facilitate the issuing of green bonds in New Zealand? a. In addition, should NZX have a role: certifying green bond issuers, certifying certifiers of green bond programmes, or should NZX leave this to external bodies and standards? Green bonds are like ethical investments in that they attract a certain type of investor. However, we do not believe they should be singled out by the NZX and any certification should be undertaken by external bodies. Question 14. Do you think that depository receipts should be introduced? If so/not, why/why not?

3 Provided there is sufficient liquidity, they would provide investors with direct investment in NZ dollars into some well-known offshore names such as Apple, Amazon, etc. Question 15. If so, what are the key shareholder protections which should be introduced? We are not familiar on how these operate in other markets but that would be the logical place to start when considering a structure around them in NZ. Question 16. Please provide feedback on demand for equity futures and options and measures to promote this aspect of the market. Equity options and warrant markets would be worth further investigation. Options have been very popular with investors in the past and may attract new investors to the NZX. Question 17. Are there any other financial products which NZX s rules should seek to specifically cater for? Crypto currencies. Bitcoin, Ethereum, etc Question 18. Do you agree with our proposal to no longer review and approve constitutions for new listings? Yes, these are already reviewed by the companies legal advisors and the NZX review is not necessary. Question 19. Do you agree with our proposals to: a. Reduce the spread requirement to 300 holders for Premium Issuers? b. Reduce the free float requirement to 20% for Premium Issuers? Yes. Question 20. Should NZX amend the current minimum holding sizes outlined in Appendix 2 of the Listing Rules? If so, how? We are relaxed about the existing parcel sizes. However, it would not hurt to reduce the minimum parcel sizes by say 30% to provide more flexibility to new companies that are listing. Question 21. Should NZX introduce additional eligibility requirements for Premium Issuers? a. If so, what requirements should we introduce? This needs to be workshopped to decide what is expected from Standard and Premium issuers. Generally, the requirements for Main Board issuers is high enough. We would not support further more onerous entry requirements being imposed. Question 22. Do you have any suggestions on amendments to the minimum director and director rotation requirements under the rules? Minimum director requirements for small cap issuers should be 3, with one being an independent and one being ordinarily resident in either of New Zealand or Australia. For premium issuers, the status quo should be maintained. We should not be afraid or resistant to having off shore companies listed on our exchange. Having one resident director should provide a sufficient degree of residence. Question 23. Should Managing Directors and directors appointed by shareholders with constitutional power be excluded from the director rotation requirements? Yes. Both should be excluded from rotation.

4 Question 24. Do you agree NZX should align its NZ residential director requirement with legislation i.e. a requirement to have at least one NZ resident director? Yes. Question 25. Should NZX retain a requirement to have a minimum number of independent directors within its mandatory rules or, alternatively, introduce a comply or explain recommendation (potentially for majority independence) within the NZX Corporate Governance Code? We support a minimum of one independent director on every Board. Data indicates that companies with less independent directors often perform better than companies laden with independent directs. Question 26. If you support inclusion within the NZX Corporate Governance Code, should NZX recommend that boards are majority independent (noting that companies will be able to explain why they may not meet such a recommendation)? a. If not, should NZX retain the current minimum independence requirements within the rules? If not, why not? We would not see an issue of including the recommendation in the Governance Code as long as they comply or explain recommendation is introduced in tandem with this. Question 27. Do you agree that NZX should move to a more principles based test of independence? Yes Question 28. If not, should NZX delete Listing Rules 1.8.3, and in their entirety? We favour a principles based test. Question 29. Do the auditor rotation requirements within the Listing Rules achieve outcomes that could not be met by auditing standards? (i.e. are these valued by investors) They are met by the auditing standards and are not necessary. Question 30. If submitters support retention of these requirements, should NZX make any further amendments to respond to the current XRB proposals for example, to ensure greater alignment with Australia? Yes. Question 31. Should the additional audit committee requirements within the Listing Rules (i.e. to have an audit committee, its composition and role) be moved into the NZX Corporate Governance Code? Why/why not? Yes, and it should be a comply or explain situation. For many small companies, the current rules are not practical. Question 32. Should NZX make any amendments to the current disclosure requirements within the rules? We believe the continuous disclosure regime works well and agree that information should be able to be released outside of market hours provided it is also released to the market before it next opens. As regards information that is perceived to be not of interest to shareholders, the NZX announcement platform is an important source of all information on companies and the status quo should remain. If companies are abusing it, this should be dealt with on a case by case basis. We recommend dispensing with the KOMs regime and having NXT issuers comply with the continuous disclosure regime.

5 Question 33. Should NZX update the content requirements for periodic reports? Yes, but this needs workshopped. Question 34. What additional tools should NZX consider introducing to assist issuers to meet their disclosure obligations under the rules? Issuers should be aware of their requirements but more user friendly, and investor friendly, templates and formats could enhance the information being released and the understanding of it. More case studies of best practice should be provided to the market also to provide working examples of the regime in practice. Question 35. Should NZX reduce the current headroom for further issues to 15%? Why/why not? One of the real benefits of the listed capital markets is for a company to be able to raise capital in an expeditious and cost effect way. We believe the current headroom of 20% and 25% for the respective regime s is appropriate. Major shareholders can prevent dilution on their shareholding by participating in a capital raising and small shareholders are also generally given a similar opportunity through an SPP. Shareholders who do not want to participate in a capital raising should not inhibit a company from raising additional capital elsewhere within the 20% threshold. Question 36. Do you agree that the major transactions approval requirement should apply to a broad range of transactions which might affect a company? (e.g. acquisitions or disposals, leases, borrowing, lending, issues of securities). We would favour the reconciliation of the LR 9.1 requirement exactly with the major transaction regime comprised within section 129 of the Companies Act. It is not logical having two separate regimes. Question 37: Do you have any comments on how transaction might be defined in the rules in order to capture the appropriate transactions? The rules need to capture the types of transactions a reasonable investor would expect to be able to vote on above an excepted threshold (see comments below in Question 28). The definitions for these need to be clear and include, but not limited to, the following: a change in strategy where it has a material impact on future sources of revenue, expenditure or balance sheet structure (particularly debt and equity levels); acquisition and disposal of assets or businesses; joint venture arrangements; expansion into other markets where the company may be taking on additional regulatory, compliance, infrastructure and market challenges. Clear definitions for any additions should be workshopped. Question 38. Should NZX reduce the threshold for shareholder approval of major transactions to 25% of the size of a transaction? We would favour a reduction to 25% of the average market capitalisation but note this measure is often not appropriate in isolation given a company s share price can either be overvalued or undervalued at any given time (particularly if the company s shares are not that liquid). The test could be combined with a multiple or % of revenue, with the lower of the two thresholds applying. Given the nature of many of today s companies balance sheets, a net asset test would not be appropriate I think this threshold is too low. I think we should rely on s 129 of the Act where the test is 50% of the value of the assets of the Company.

6 Question 39. How should NZX measure the size of a transaction? See comments on questions 37 & 38. These need to be workshopped. Question 40. Should NZX make any amendments to the related party transaction thresholds? We are happy with the current rules. Definitions should be reviewed as part of the review. Question 41. Do you agree with the proposal for a spread requirement of 100 holders and free float requirement of 20% for Standard Issuers? We currently have 50 shareholders on the NXT and that appears workable. We query why 100 has been chosen? Question 42. Should there be any other eligibility requirements for Standard Issuers, including a minimum market capitalisation? A minimum market capitalisation should be abolished if the aim on the standard market is to attract SME s and high growth emerging companies. The spread and free float requirements, combined with costs involved, will selfregulate listings. Also, market capitalisation and company valuations can be very subjective and wide ranging. If the Company can fund the not insignificant costs of listing, they should be entitled to list on the market. Prospective Financial Information (PFI) is unrealistic for fast growing companies given the very nature of their rapidly changing financial profile and is a significant additional expense. However, the current KOM structure on the NXT market is also unsatisfactory. PFI is outrageously expensive to compile and have reviewed by an Independent Advisor. Our experience is that the costs of having the PFI reviewed is upwards of $300,000. This is simply too expensive even for a mid to large scale sized company that is not necessarily raising money from the public. This requirements and cost does prevent some issuers from coming to the market. Standard issuers should only have to provide unaudited (non PFI) forecasts for 1 year out on listing and come under the continuous disclosure regime (abolish the NXT KOM structure). There could also be a requirement that after the first year of listing, guidance on how the company is progressing should be included in half and full year reporting for standard issuers. Assuming there is a base module of rules all listed companies need to comply with (accepted governance standards, continuous disclosure etc), it should be left to investors as to the level of risk they want to take based on the information available and the type of listed issuer (standard or premium). Question 43. Do you agree with the proposal to allow more flexibility in governance requirements for Standard Issuers? Why/why not? Yes. The current structure does not recognise the nature of smaller companies or fast growth companies. Question 44. What should the minimum governance requirements be for Standard Issuers? A minimum of 3 directors, including one who is independent and one who is ordinarily resident in New Zealand or Australia. Question 45. Should Standard Issuers be required to report against the NZX Corporate Governance Code or a tailored version of this? Only to the extent of comply or explain.

7 Question 46. Should NZX allow more relaxed timeframes for periodic reporting obligations under the rules? Periodic reporting and continuous disclosure requirements should remain the same and apply to both classes of issuers. Question 47. Should NZX introduce quarterly cash flow reporting for Standard Issuers? Should this apply to apply to all new Standard Issuers (or a subset) and for how long? This would be an additional burden for smaller companies looking to list and the benefits for investors would be questionable. Under continuous disclosure, there should be enough protection for investors. Cash flow reporting without context does not necessarily constitute meaningful information to the market. In order to ensure that the market can actually understand that information, an issuer would essentially need to prepare a quarterly report to properly disclose the information to the market. Question 48. Should NZX require reporting of Key Operating Metrics for Standard Issuers? Should this apply to apply to all new Standard Issuers (or a subset) and for how long? Having been at the forefront of NXT listings, the KOM structure is a significant extra cost and compliance burden for issuers. We do not believe it achieves or affords any greater clarity or comfort to investors than the continuous disclosure regime. We recommend the KOM structure be discontinued and replaced with continuous disclosure. Question 49. Should NZX make any other amendments to the reporting and disclosure requirements for Standard Issuers? A base compliance module, continuous disclosure and comply or explain are all that are necessary along with other suggestions made throughout this submission. Question 50. For which types of transactions should shareholder approval be required for Standard Issuers? See our response to Questions 36, 37, 38 & 39. Shareholder approvals should be the same across Standard and Premium issuers. Question 51. What should the relevant approval thresholds be? See response to Question 50. Question 52. Do you agree NZX should allow a pre-break regime in relation to shareholder approval requirements for Standard Issuers? The pre-break regime is not effective. By the time the issuer has prepared the pre-break notice, and had it approved by NZX Regulation, it would have been just as easy to have prepared a notice of meeting and had that approved by NZXR and hold a meeting. In that case you would add another 10 working days notice to the prebreak procedure, but you have to wait for the notice period to lapse anyway for someone to object in terms of the LR so there is little to be gained from the process. Question 53. Do you agree NZX should remove current spread and free float requirements for debt issuers? Who/why not? Question 54. What steps should NZX take to improve liquidity in its Debt Market, particularly for perpetual and longer dated instruments?

8 Question 55. What steps can NZX take to encourage listing of longer dated debt instruments? Question 56. Should NZX list wholesale debt instruments? If so, what steps should be taken to facilitate the listing of wholesale debt instruments? Question 57. What other amendments should NZX consider in relation to debt issuers? Question 58. What amendments should NZX make to the rules to the current debt governance arrangements? Question 59. Should NZX make any amendments to the disclosure and reporting requirements for debt issuers? Question 60. What spread and free float requirements should be imposed for listed funds? Please also provide feedback on any necessary amendments to Appendix 2 under the Listing Rules for funds. Question 61. For those fund entities who are licensed and may wish to be listed, we seek feedback on areas of the Listing Rules which should supplement licensing requirements. Question 62. A number of entities with fund qualities but with corporate structures are listed as equity issuers under the rules (for example, corporate property investment companies). Is this the most appropriate treatment of these vehicles or would bespoke rules be preferable? Question 63. Should a separate approach be taken to the listing/regulation of active and passive funds? Or open and closed ended funds? Question 64. What governance arrangements should NZX require for listed funds? Please explain appropriate distinctions for different structures. Question 65. What disclosure and reporting requirements should NZX require for listed funds? Question 66. What member/unitholder approval requirements should NZX require for listed funds?

9 Question 67. What amendments should be made to the current corporate action timetables under the rules? See below. Question 68. Should the time frame under Listing Rule be reduced? If so, by how much? We think 5 working days notice should be sufficient for most corporate actions. 10 working days is too long. Question 69. Should NZX introduce a mandatory latest date for acceptances of DRP elections of the record date plus 1 business day to align with Australia? We have no view on the practicality of this timeframe. Question 70. Do you agree with the proposals above in relation to reverse/backdoor listings? Why/why not? We consider given the volume of documentation required to be submitted to shareholders in a RTO, that you already treat such transactions as new listings. We are not opposed to listed shells that have no current business operations at all being suspended pending the announcement of a potential transaction, and the announcement of a meaningful interim disclosure document to the market about the RTO transaction which would take place prior to the distribution of the complete RTO documentation to shareholders. We are not in favour of the listing of clean skin shells. Given they would be suspended pending an RTO transaction, and the amount of disclosure required to be given to shareholders of the issuer before the RTRO could proceed, and the costs associated with it we do not see the value of the shell. As principals who have been involved in over 12 RTO s in New Zealand and a number of RTO s in Australia, the RTO market has become marginal now due to the costs, timing and documentary requirements associated with an RTO. The RTO should be a mechanism purely for reinventing existing shells, rather than encouraging speculative entrepreneurs in the market, who can manipulate markets on the back of the prospect of an RTO transaction. In addition, the ability of vendors of good businesses to vend their operations into a SPV listed shell is fraught with risk if the promoters of the listed SPV are not genuinely interested in creating a quality outcome for all stakeholders. Normally a major shareholder/promoter of a listed shell will only facilitate an RTO transaction if they are to be the prime beneficiary of the transaction, often to the detriment of the minority shareholders of the SPV shell and to the vendors of the business operation to be vended into the SPV shell. This may or may not be a situation that the NZX is trying to promote. In addition, the costs and timing and certainty around an RTO, if the current documentary and regulatory requirements are to be adhered to, essentially suggest the that an IPO or a compliance listing of a prospective issuer is more economical, less risky, and quicker than an RTO. Question 71. Do you have any other feedback in relation to reverse/backdoor listings? See comments above. Question 72. Should NZX facilitate the listing of SPACs/SPVs? What are the appropriate shareholder protections for these vehicles? No see comments above.

10 Question 73. Do you agree with the proposals above in relation to settings for overseas listed issuers? Yes, we agree on one category for overseas listed issuers Question 74. Do you have any other feedback in relation to settings for overseas listed issuers? As long as they are fully compliant with their home exchange requirements and differences in time zones are adequately catered for to ensure information is disseminated equally then additional compliance should be at a minimum. Question 75. Should NZX introduce any additional requirements in relation to the conduct of Annual Meetings? Virtual meetings should be encouraged as they are the most practical way in today s world to reach as many shareholders as possible. Opposition by some quarters who still insist on a physical meeting is ill founded. Most meetings are very poorly attended and an unnecessary expense for issuers. Question 76. What amendments should NZX make to Listings Rules 5.1 and 5.2? No comment. Question 77. Are any specific amendments needed to the rules to address requirements of co-operatives or other structures? No comment Question 78. Do any of the key definitions under the rules need to be amended? No comment Question 79. Please provide any feedback on other areas of the rules which you think should be amended and the reasons for requesting such amendments. We have no additional comments