Review of the NZX Listing Rules

Transcription

1 Review of the NZX Listing Rules Discussion Paper Simpson Grierson Feedback 17 November 2017

2 Introduction Thank you for the opportunity to provide our comments on the "NZX Listing Rule Review" discussion paper. These comments are prepared as at 17 November Any questions about our comments should be addressed to: Don Holborow Partner Andrew Matthews Partner Michael Pollard Partner James Hawes Partner Matt Tolan Senior Solicitor Lincoln Matthews Solicitor

3 Part 1: Context to review Question 1: Do you agree with the stated objectives of the review? If not, why not? Yes, we agree with the stated objectives of the review. We are generally supportive of changes that will simplify compliance obligations, reduce compliance costs and improve liquidity, while retaining protective minimum standards and promoting investor confidence. Question 2: Do you agree with the proposed timetable and process for review? If not, why not? Yes, we agree with the proposed timetable and process for review. Part 2: Proposed structure of updated rules A: Market structure 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? We are broadly satisfied with the current requirements under the NZX Main Board/Debt Market Listing Rules (Rules), and agree with NZX that they are generally operating effectively. We therefore consider that the current requirements under the Rules are an appropriate starting point for updated Rules. However, we are also not opposed to an alternative approach, if a better one is proposed.

4 Question 4: Do you agree that NZX should adopt a modular approach to updated rules? If not, why not? We believe that the Rules, as they are currently drafted, are logically organised and relatively readable. However, we support a modular approach to drafting if such a change would further improve readability, help to streamline the Rules, or make them more flexible. B: Differential standards for equity issuers 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? In general terms, we believe the current requirements under the Rules set appropriate minimum standards and provide the right level of protection for investors. We would not support significant or wide ranging reductions in requirements under the Rules. We believe that any relaxation in requirements should be restricted to certain, limited areas where there is clear evidence that greater flexibility is required. We would, however, support the introduction of additional requirements, over and above baseline requirements, that would apply only to premium issuers. As discussed further below, premium issuers should be exactly that; a step above, and able to satisfy criteria in addition to existing standards. This would provide a market with differential standards where: (a) all issuers are required to comply with broadly the same requirements as under the current Rules; and (b) some issuers may opt to comply with stricter requirements, over and above those under the current Rules. Subject to NZX adopting that general approach, we support the idea of providing an updated market structure via a single rule set with differential standards for equity issuers. We believe that: The current three market structure is overly complex. Any benefit in having multiple separate equity markets is outweighed by the additional complexity and disjointedness that this structure creates. A better approach is to create a single equity market with a single set of harmonised rules. This streamlined approach would enable any person dealing with a listed company to rely on the same set of rules (subject to waivers). This would in turn improve familiarity and

5 understanding of the Rules, encourage a consistent approach to compliance across issuers, and provide flexibility to change and update the Rules in an efficient and consistent manner. Providing differential standards and/or providing exemptions from particular requirements is an appropriate way to tailor requirements to ensure small to medium companies are provided with a rule setting that is appropriate for their size. It is, however, important that appropriate baseline protections exist to promote ongoing investor confidence. As noted above (and in more detail below), we would be concerned if there was a reduction in corporate governance or investor relations standards (for example, by effectively broadening the categories of company to which the lesser current NZAX rules apply). Question 6: Do you agree that NZX should have differential requirements for equity issuers? As noted above in our response to question 5, we believe that differential standards are an appropriate way to ensure the Rules appropriately cater to both large and small to medium sized companies. Question 7: What criteria should be used to determine whether differential requirements should apply (e.g. options 1 or 2 above or something else)? We support option 2 (self-selection, subject to eligibility requirements) because: This approach supports freedom of contract. Investors can choose whether or not to invest in a company based on a range of factors including their comfort with the governance and other requirements that apply to it. These investment decisions will provide a signal to issuers as to whether opting to comply with additional requirements would provide real value to investors in the particular circumstances. This approach allows companies to better manage their compliance obligations, in the knowledge that they will not automatically become subject to different obligations based on factors outside of their control. This is particularly true of, for example, companies with fluctuating (average) market capitalisation, where such fluctuations might result in fluctuating compliance obligations. We assume that all issuers would remain subject to requirements that provide appropriate baseline protections for investors (generally akin to those under the current Rules), such that investors can continue to have a high level of confidence in the governance of standard issuers. Optional additional requirements would be over and above these baseline requirements. Our support for self-selection is also subject to the qualification that issuers should be subject to appropriate eligibility thresholds that must be satisfied before an election to become a recognised premium issuer can be made. These thresholds would restrict the number and type of companies that can elect to become premium issuers, and therefore:

6 provide the premium issuer label with a point of difference (i.e. reinforce the brand/status in listing as a premium issuer); and protect the premium issuer label from dilution (see our response to question 8 below). Question 8: What do you consider is an appropriate cut off to be considered a smaller issuer? We believe that an appropriate cut off should be set at a market capitalisation that would qualify 60% of current issuers as premium issuers, with remaining 40% being standard issuers. We estimate that, based on figures available to us, this would result in a threshold market capitalisation of approximately $140 million. We believe this is an appropriate threshold for two reasons: 1) It captures a sufficiently large group of issuers to ensure a reasonable level of uptake and give the premium issuer label credibility in the marketplace; and 2) It captures a sufficiently small group of issuers to ensure that the premium issuer label remains aspirational. We believe there is a real risk that, if too many issuers are able to elect to become a premium issuer, the premium listing will become the default setting. Peer pressure will force companies to match competitors who elect to comply with higher standards. The standard issuer label will end up in the same position as current secondary markets, which struggle against the NZX main board because of perceived inferiority. Question 9: What branding should NZX use for the separate equity listing categories? We believe the labels Standard Issuer and Premium Issuer are appropriate. The Premium Issuer label is consistent with the label used on the London Stock Exchange, and therefore makes sense for the purpose of international comparison. C: Debt & Funds Question 10: Do you agree that it is appropriate to have separate rule settings for debt and funds? We believe that it makes sense to have specialised listing categories with coherent rule settings for debt and funds (managed investment schemes), given that there are some fundamental differences between these and equities. The funds that are currently listed on the Main Board require waivers from a number of the Listing Rules because those rules are inapplicable to, or are unnecessary for, a

7 fund. The specific rule settings for funds should reflect the governance requirements for managed investment schemes in subpart 2 of Part 4 of the Financial Markets Conduct Act However, we encourage NZX to maximise the consistency between rule settings to the greatest extent possible. For example, taking the modular approach referred to above, key eligibility and governance requirements might be the same across equities and debt/funds. Other modules, such as reporting requirements, might be tailored for each listing category to reflect the structural differences between them. Question 11: Do you have any feedback on how to promote and facilitate the listing of funds (including MIS structures)? Question 12: Do you have any feedback on how to promote and develop NZX s listed debt market? We note that, in our experience, most of the lead arrangers for debt issuances are retail banks who take debt onto their balance sheet and have no need to sell it to retail investors through a listed market. The scope for growth in this market is therefore likely to be limited. Question 13: What steps should NZX take to promote and facilitate the issuing of green bonds in New Zealand? D: Depository receipts and other financial products Question 14: Do you think that depository receipts should be introduced? If so/not, why/why not? We are not opposed to the introduction of depository receipts, but would first want to understand the problem this would resolve or the opportunity this would take advantage of. For example, would it overcome a barrier to listing that would ordinarily prevent trading in the shares of an overseas company? In addition, we would want to understand whether there is sufficient market interest and liquidity to support the introduction of depository receipts.

8 Question 15: If so, what are the key shareholder protections which should be introduced? Question 16: Please provide feedback on demand for equity futures and options and measures to promote this aspect of the market. Question 17: Are there any other financial products which NZX s rules should seek to specifically cater for?

9 Part 3: Specific rules settings A: Equity Premium Issuers Question 18: Do you agree with our proposal to no longer review and approve constitutions for new listings? Our preference is for NZX to continue reviewing company constitutions, on the basis that this process is a relatively simple value add. We do not expect the review process is particularly time consuming, and it provides the opportunity for high-level vetting of core governance arrangements. However, we also understand that the process is not a priority for NZX, and that discontinuing the approval process would make it clear that NZX is not providing a formal sign off on the content of constitutions. 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? No. We are comfortable with a spread requirement of 300 holders for premium issuers. However, as explained in more detail in our response to question 21, we support a higher threshold for premium issuers (50% free float). Question 20: Should NZX amend the current minimum holding sizes outlined in Appendix 2 of the Listing Rules? If so, how? We believe minimum holding sizes should be increased. We suggest an increase to a $1,000 minimum holding. An increase in minimum holding size will assist issuers in managing their share register. The power under Rule 8.5 to force shareholders to sell if they do not have a meaningful holding is an important share registry management mechanism. An increase in minimum holding will improve the ability for issuers to exercise this power.

10 Question 21: Should NZX introduce additional eligibility requirements for Premium Issuers? If so, what requirements should we introduce? As noted in our response to question 7, above, we support the introduction of baseline eligibility thresholds that must be satisfied before an election to become a recognised premium issuer can be made. We support a minimum free float eligibility threshold. As noted above, we believe the base eligibility requirement for listing should be reduced to a 20% free float. We believe the threshold for eligibility to become a premium issuer should be at least 50% free float. This higher threshold would reflect the expectation that premium issuers are subject to a higher standard of corporate governance. Increased free float is one way that investors can have confidence that the company can be properly scrutinised by, and will be accountable to, non-majority shareholders. We support a three year operating record threshold. Requiring an operating record would reflect the expectation that premium issuers have a proven track record, and are stable and relatively secure investments. We believe it is appropriate that new companies should need to prove themselves before graduating to becoming a premium issuer. We also support market capitalisation threshold (see our response to question 8). We do not support a minimum profit level threshold, on the basis that there are circumstances where a non-profitable company (particularly technology companies) should be entitled to become a premium issuer. The base listing eligibility criteria, plus those additional premium criteria noted above, above would provide sufficient reassurance to investors that the company is well run from a governance perspective. Question 22: Do you have any suggestions on amendments to the minimum director and director rotation requirements under the rules? No. We believe the current requirements work well. Question 23: Should Managing Directors and directors appointed by shareholders with constitutional power be excluded from the director rotation requirements? We believe the current requirements work well.

11 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? We support alignment with the legislative requirement because it will increase simplicity. We do not believe that there is any benefit in requiring a greater number of residential directors than is required under the Companies Act. A single resident director, combined with the fact that listed companies are generally reputable and subject to other regulatory scrutiny, provides sufficient reassurance to shareholders that overseas companies listing with NZX will be well governed and accountable. 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 comply or explain recommendation for majority independence for premium issuers. This approach provides the flexibility to determine that majority independence is not appropriate in the circumstances of a particular company, while also allowing shareholders to make fully informed decisions. As NZX notes, the appropriate make up of a board is ultimately a matter for shareholders to determine the through the exercise of shareholder voting rights on appointment and re-election of directors. We are also supportive of this approach because it is consistent with ASX requirements. 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? As noted in our response to question 25, we support a recommendation for majority independence for premium issuers. We believe there are real benefits in encouraging majority independence. The fact that 76% of NZX s 75 largest listed issuers already have majority independent boards suggests including a recommendation for majority independence would simply be an endorsement of existing market best practice. We also recognise that in some circumstances it will be appropriate to have less than a majority of independent board members, and that there are merits in a company having non-independent board members. However, the ability for companies to explain their non-compliance, combined with the ability for shareholders to exercise their voting rights on appointment and re-election of directors, provides sufficient flexibility to address different circumstances.

12 We believe that, for standard issuers, the current Rules provide an appropriate and more flexible requirement for at least one third of directors to be independent. We support retaining this requirement as the baseline requirement for standard issuers. Question 27: Do you agree that NZX should move to a more principles based test of independence? No. At a high level, we support the current approach of an overarching principle complemented by a number of bright line deeming rules that inform the principle. To encourage greater focus on the principles when assessing independence, we would support the inclusion of improved guidance on the situations which would be likely to be considered to give rise to non-independence. However, we also believe that the deeming provisions provide the clearest form of example to help inform the relevant principle. If there are concerns with the current deeming provisions, we suggest they be refined and further guidance be provided. Question 28: If not, should NZX delete Listing Rules 1.8.3, and in their entirety? No. As noted above, we believe that these clauses give useful context to inform the high level principles for independence, and provide better idea of where the dividing line between independence and non-independence is. However, we would support drafting revisions and corrections to these clauses to ensure that they operate effectively. For example, Rule 1.8.3(c) should be deleted. 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) We believe that auditing standards are able to govern auditor rotation requirements adequately, and that there is no benefit in the Rules duplicating the standards developed by the XRB. 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? See our response to question 29. We believe the XRB is the appropriate body to set audit requirements, and do not believe that there is benefit in duplicating or varying the standards developed by the XRB.

13 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? We believe that certain fundamental, baseline requirements (such as those in Rules and 3.6.2) should be retained in the Rules. More operational requirements (such as those in Rule 3.6.3) could be moved to the Governance Code. Question 32: Should NZX make any amendments to the current disclosure requirements within the rules? We would support greater guidance on the meaning of material information to facilitate consistent and appropriate levels of disclosure (noting that we also recognise the benefit in retaining some flexibility to allow issuers to take a cautious approach in determining whether or not information is material). We also note that the current disclosure requirements are difficult to negotiate when a listed issuer is in financial or other difficulty. While we do not think that amending the requirements is the right solution for this problem, this is an area where further guidance on the circumstances in which NZX would be prepared to grant extended trading halts or suspensions would be useful. Question 33: Should NZX update the content requirements for periodic reports? Question 34: What additional tools should NZX consider introducing to assist issuers to meet their disclosure obligations under the rules? Question 35: Should NZX reduce the current headroom for further issues to 15%? Why/why not? We support a reduction in the permitted issue of securities without shareholder approval to 15% per year because: A reduction would align with ASX.

14 It is an appropriate time to do so, noting that the increase to 20% was made as a response to the 2007 global financial crisis, and has not yet been reduced back to the normal level. 20% is a relatively large dilution of shareholder interests, and therefore the current threshold does not adequately protect the interests of existing shareholders. We also believe that the current threshold for shareholder approval of issues of new securities under employee share schemes should be changed. We believe that it would be useful to align employee share scheme requirements with those set out in the Australian Corporations Act. The Australian requirements limit the issue of shares under an offer, when aggregated with other offers made in the previous three years, to 5% of the issued capital of the listed body. This contrasts with the 3% per year requirement under the Rules. Alignment in this area would significantly simplify compliance for issuers who operate employee share schemes in both New Zealand and Australia. 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) No. We are comfortable with the current requirements, which reflect the principles of the Companies Act. The current threshold provides an appropriate balance between (a) ensuring shareholders have input into fundamental changes in the nature of a business and the acquisition/disposition of significant assets, and (b) allowing the board to make operational decisions efficiently. We note the NZX statement that it seems appropriate for shareholders to have stronger protections. However, we are not aware that the current major transaction requirements have been undermining shareholder interests in practice. We would want to see evidence of issues with the current major transaction requirements before we would support broadening the range of transactions to which the requirements apply. We also note that a reduction in the major transaction threshold could significantly increase the complexity and costs of compliance for companies, which is contrary to the stated objectives of this review. Question 37: Do you have any comments on how transaction might be defined in the rules in order to capture the appropriate transactions? As noted above in our response to question 36, we do not support broadening the definition of transaction.

15 Question 38: Should NZX reduce the threshold for shareholder approval of major transactions to 25% of the size of a transaction? No. As noted above, we are comfortable with the current requirements and do not support a reduction to the threshold for shareholder approval of major transactions. Question 39: How should NZX measure the size of a transaction? We believe that average market capitalisation is a good measure of the size of a transaction. It provides a good reflection of the proportional value of a transaction as compared to the size of a company. Flexibility is provided in appropriate circumstances through the ability for issuers to apply to NZX for waiver. We would want to understand the problems (if any) caused by using the existing measure before endorsing a change to another measure. Question 40: Should NZX make any amendments to the related party transaction thresholds? 1) Refinement to scope of related party transaction threshold We believe that the scope of the related party transaction requirement is too wide, and therefore captures transactions that should not be subject to shareholder approval requirements. Rule 9.2.1, in its current form, applies to a material transaction where a related party is simply an indirect party to one of a series of transactions of which the material transaction forms part. The particular transaction to which the related party is party need not itself be material. There is also no need to establish the relevance (directness) of a related party s participation in one of the transactions in the context of the material transaction as a whole. In short this means that a related party can be significantly removed from the material transaction itself, such that it is not necessary to provide shareholders with shareholder approval protections. Our experience is that, due to the broad scope of the current requirement, issuers often apply for (and are granted) waivers from Rule 9.2 in order to achieve desirable and practical outcomes. We believe this is a good signal that improved drafting is required. We propose a refinement to the threshold at which the related party transactions apply, to ensure that only sufficiently material transactions which related parties are directly involved with are captured.

16 In our view, it would be logical to have a simplified two-part test, as follows: The first part of the test would involve assessing whether the relevant transaction (or related series of transactions) is a material transaction of the issuer; and The second part of the test would involve assessing whether a party to the transaction is a related party. This could be achieved by removing the concepts of indirect party and related series of transactions from 9.2.1(a) (with 9.2.1(b) being unchanged). Even if the approach described above is not favoured, we suggest a drafting error in Rule 9.2, involving replication of the wording related series of transactions, be corrected. The error arises because the definition of Material Transaction in Rule includes a related series of transactions. However, the wording of Rule also expressly extends the application of that requirement to a related series of transactions ( a direct or indirect party to the Material Transaction, or to at least one of a related series of transactions of which the Material Transaction forms part ). We suggest removing the duplicate wording from Rule 9.2.1, and instead relying solely on the definition of Material Transaction to cover a related series of transactions. It is the related party s involvement in (as a party to) the related series of transactions which constitutes the material transaction which should trigger the shareholder approval requirements. 2) Drafting improvement in relation to joint ventures We also recommend a drafting improvement in relation to Rule 9.2.3, as it applies to joint ventures. Rule 9.2.3(f) exempts incorporated joint ventures and unincorporated joint venture participants from the definition of Related Party. However, Rule 9.2.3(f)(ii) provides that the relevant issuer must be entitled to participate in half the income or profits and the assets of the joint venture before the exemption will apply in relation to that joint venture. This is generally appropriate for the joint venture itself, and operates on a similar policy basis to the exemption provided in 9.2.3(f) for subsidiary companies. We do not, however, consider that other joint venture participants should be subject to the same requirement. In our experience, joint venture participants generally operate on an arm s length commercial basis and on the terms set out in a joint venture agreement, potentially with limited operational involvement in the activities of the joint venture. We do not believe this is the sort of relationship that needs to be subject to the related party requirements under the Rules. It is common for an issuer to have less than a 50% interest in a joint venture, but for the relationship with other participants in that joint venture to nonetheless be sufficiently arm s length that the relationship should be exempt from related party requirements. We believe it is therefore appropriate to amend Rule 9.2.3(f)(ii) to exempt from the definition of Related Party : (a) incorporated and unincorporated joint ventures in which the relevant issuer is entitled to participate in half the income or profits and the assets (by analogy to the subsidiary exemption); and (b) other joint venture participants (whether the joint venture is incorporated or unincorporated). If the above refinement is not favoured, the word participant should be removed from the phrase unincorporated joint venture participant at the end of 9.2.3(f)(ii). The Issuer s relevant interest

17 would be in the unincorporated joint venture, not another participant in the unincorporated joint venture. B: Equity Standard Issuers Question 41: Do you agree with the proposal for a spread requirement of 100 holders and free float requirement of 20% for Standard Issuers? Yes, we agree with this proposal. We support the objective of increasing consistency with other jurisdictions, particularly ASX. Question 42: Should there be any other eligibility requirements for Standard Issuers, including a minimum market capitalisation? We support a minimum market capitalisation threshold. We suggest $15 million would be an appropriate minimum. This would provide some assurance of sufficient liquidity to support trading and increase consistency with ASX. Question 43: Do you agree with the proposal to allow more flexibility in governance requirements for Standard Issuers? Why/why not? Generally, we believe governance is an area that should be standardised and consistent across issuers, unless there is strong evidence that flexibility is required in specific areas. We believe current requirements provide appropriate minimum standards, and that governance is not an area where NZX should take a more relaxed approach. Having said that, we do believe it is appropriate that standard issuers should be subject to (certain, limited) more flexible governance requirements than premium issuers. The purpose of premium category is to impose a higher standard of corporate governance, and the Rules should recognise the difference between those companies and smaller, younger companies. However, this difference should be reflected by imposing stricter requirements on premium issuers, rather than reduced requirements on standard issuers. For example, a recommendation for a majority of independent directors could apply to premium issuers only.

18 Question 44: What should the minimum governance requirements be for Standard Issuers? See our comments above in response to question 43. We believe the current governance requirements are broadly appropriate. Question 45: Should Standard Issuers be required to report against the NZX Corporate Governance Code or a tailored version of this? The Code should contemplate the two different listing categories (standard and premium). Certain of the requirements under the Code (the additional over and above requirements) would only be applicable to premium issuers. For example, if NZX adopts the approach of recommending that premium issuers have a majority of independent directors, the Code should reflect this. NZX will need to consider which aspects of the Code will apply only to premium issuers. Subject to the above, we support requiring issuers to report against the NZX Code. This would provide transparency on governance practices and therefore promote compliance and the adoption of best practice. Question 46: Should NZX allow more relaxed time frames for periodic reporting obligations under the rules? No. Reporting timeframes should be consistent across all issuers. This provides simplicity and prevents confusion. We do not believe that relaxing timeframes for standard issuers would make a material difference to their ability to comply with relevant requirements. Question 47: Should NZX introduce quarterly cash flow reporting for Standard Issuers? Should this apply to all new Standard Issuers (or a subset) and for how long? We believe that the same reporting requirements should apply to all standard issuers (subject to waivers). This provides simplicity and prevents confusion. If there is evidence of a problem with existing reporting requirements then we agree these should be addressed, but the basic starting point should be that all issuers must comply with the same set of rules, with premium issuers required to comply with obligations over and above standard issuers.

19 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? See our response to question 47. Question 49: Should NZX make any other amendments to the reporting and disclosure requirements for Standard Issuers? See our response to question 47. Question 50: For which types of transactions should shareholder approval be required for Standard Issuers? We believe the current requirements are appropriate. Question 51: What should the relevant approval thresholds be? We agree that it is appropriate for standard issuers to be subject to more relaxed thresholds than premium issuers. This can be achieved by setting higher than current requirements for premium issuers. If the approval threshold for major transactions is set at 25% for premium issuers, for example, we believe it would be appropriate to keep the threshold for standard issuers at 50%. Similarly, if the limit on issuance of new shares was set at 15% for premium issuers, we believe it would be appropriate to set the threshold for standard issuers at 20%. Question 52: Do you agree NZX should allow a pre break regime in relation to shareholder approval requirements for Standard Issuers? No. We note that the use of the pre-break announcement regime is used minimally in the NZAX context, and so would likely have a minimal impact on standard issuers.

20 C: Debt Issuers Question 53: Do you agree NZX should remove current spread and free float requirements for debt issuers? Who/why not? No. We believe that a minimum threshold for listing is appropriate to ensure sufficient liquidity for trading. Question 54: What steps should NZX take to improve liquidity in its Debt Market, particularly for perpetual and longer dated instruments? 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?

21 Question 59: Should NZX make any amendments to the disclosure and reporting requirements for debt issuers? D: Funds 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. The spread and free float requirements for listed funds should be the same as those for equity securities. 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. The licensing regime under the Financial Markets Conduct Act 2013 (FMCA), overseen by the Financial Markets Authority (FMA), will likely be adequate for listed funds. It may be appropriate for listed funds who become Premium Issuers to be subject to stricter requirements, such as a requirement that the licensed manager of the fund has an appropriate number of independent directors. 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? In our experience, the corporate structure for property investment companies is largely driven by the preferences of investors. It is possible for such an entity to be structured as a managed investment scheme (but not a managed fund) under the FMCA, but this structure is not widely understood by retail investors. It would be appropriate for property investment companies to continue to be treated as equity issuers for the purposes of the Listing Rules. The FMA has recently considered property investment companies, which resulted in shares in investment companies with certain characteristics being designated as managed investment schemes by the Financial Markets Conduct (Shares in Investment Companies) Designation Notice 2017 (Designation). Given that the FMA has excluded listed entities with corporate structures from the Designation we believe that any steps that NZX took to impose fund specific requirements on these types of entities would be poorly received, unnecessary and likely to disincentivise listing.

22 Question 63: Should a separate approach be taken to the listing/regulation of active and passive funds? Or open and closed ended funds? We would favour a single set of rules for listed funds that reflect the requirements of the FMCA for managed investment schemes. Question 64: What governance arrangements should NZX require for listed funds? Please explain appropriate distinctions for different structures. The governance requirements under the FMCA are likely to be adequate for listed funds. Question 65: What disclosure and reporting requirements should NZX require for listed funds? Fund updates for managed funds and annual reports for managed funds and other managed investment schemes could be made available over the market announcement platform. Question 66: What member/unitholder approval requirements should NZX require for listed funds? We would favour approval requirements that reflect the requirements for managed investment schemes under the FMC Act. E: Corporate Action Timetables Question 67: What amendments should be made to the current corporate action timetables under the rules? We do not believe that any changes to the current corporate action timetables are required. Question 68: Should the time frame under Listing Rule be reduced? If so, by how much?

23 We believe it is appropriate to reduce the timeframe to five business days. This gives an ex-date of three trading days after an announcement, which we believe is sufficient. 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 believe increased alignment with Australian requirements is desirable. F: Reverse and Backdoor Listings Question 70: Do you agree with the proposals above in relation to reverse/backdoor listings? Why/why not? Yes, we agree. Question 71: Do you have any other feedback in relation to reverse/backdoor listings? No, we do not have any other feedback. Question 72: Should NZX facilitate the listing of SPACs/SPVs? What are the appropriate shareholder protections for these vehicles? We are not opposed to NZX facilitating the listing of SPACs, but question the practical usefulness of, and interest in, them in the market. G: Overseas Listed Issuer Settings Question 73: Do you agree with the proposals above in relation to settings for overseas listed issuers?

24 We believe that if an issuer is complying with the regulatory regime of another recognised exchange then the issuer should be able to rely on its compliance with that regime. This would ensure sufficient shareholder protections are retained while also reducing compliance costs for those issuers. Question 74: Do you have any other feedback in relation to settings for overseas listed issuers? No, we do not have any other feedback. H: Other Question 75: Should NZX introduce any additional requirements in relation to the conduct of Annual Meetings? We encourage NZX to increase flexibility to hold annual meetings virtually and offshore (provided in this case that a virtual meeting is provided as an option). Question 76: What amendments should NZX make to Listings Rules 5.1 and 5.2? Question 77: Are any specific amendments needed to the rules to address requirements of cooperatives or other structures? We believe there would be some benefits in providing for an alternative takeovers regime for entities that are not subject to the Takeovers Code. Co-operatives are good examples of companies that would likely need leniency in certain areas of the Rules to allow them to operate effectively. However, we think these should be considered on a case-by-case basis initially. Question 78: Do any of the key definitions under the rules need to be amended?

25 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.