Consultation Memorandum

Consultation Memorandum The New Market 14 March 2014

Contents: Overview Part I Part II Part III Part IV Part V Executive Summary Introduction Background The New Market Design Features Regulatory Overview of the New Market Consultation Part VI Part VII Part 1 of Consultation: Disclosure Framework Part 2 of Consultation: Market Rules 14 MARCH 2014 2 of 20

Part I Executive Summary Many small to mid-sized New Zealand businesses are having their growth potential constrained by a lack of expansion capital. And many profitable, established businesses are limited in their options to address the challenges of inter-generational succession planning (exacerbated by an ageing business owner population). Conversely, the ongoing growth in Kiwisaver and a prolonged period of low interest rates means many investors are looking for a broader range of New Zealand based assets with different riskreturn characteristics. The current market mechanisms are not effectively connecting the sources and users of capital in this area. There is a gap in New Zealand s capital markets infrastructure between smaller private markets, such as angel and venture capital, and the NZX Main Board, which is targeted at larger and more established businesses. The New Market is an exciting innovation in New Zealand s capital markets. It is designed to address this gap; to be a simple, targeted, well-informed, low cost and effective way for businesses to access necessary capital, and for investors to gain exposure to growing NZ companies. Key Features Benefits Refer A market for small to mid-sized businesses with an expected market cap of $10-100M and a minimum capital raise of $5M for those seeking additional capital Simplified listing rules and template based procedures. This includes a shortened listing document for companies A periodic disclosure environment, where companies will provide quarterly business updates to the market and immediately notify the market if one of a pre-determined set of events occurs New Market companies will provide projections against Key Operating Metrics rather than provide prospective financial information ( PFI ). Companies will receive structured and standardised support from New Market Advisors, before and after listing Targeted At the current gap in NZ capital markets Small and mid-sized businesses Lower cost for companies More accessible for investors Simplified approach for companies More informed investors Lower listing and compliance costs for companies Key drivers of business performance provided to investors Lower listing costs Additional oversight for investors Schedule 1A of the New Market Listing Rules Rule 3 of the New Market Listing Rules and Section 3 of the Procedures and Templates Section 5 of the New Market Listing Rules and Section 2 of the Procedures and Templates Section 3 (Paragraph 2.3) of the Procedures and Templates For companies, Rule 17 of the New Market Listing Rules and, for Advisors, the New Market Trading Rules, and, for Advisors, Section 2 of the New 14 MARCH 2014 3 of 20

Market Trading Rules Market making and research provided for all companies Online investor community Improved liquidity More information Improved engagement between companies and investors Designated service provided by New Market Advisor or engaged by NZX New market website (launching Q2 2014) New Market companies will typically be at an earlier stage of business development than companies on other NZX markets. As such, the risks of investing in New Market companies may be higher than investing in other companies. It is critical that the New Market s design maintains the integrity of New Zealand s capital markets. The following table summaries design features intended to mitigate potential risks relating to the New Market s operating framework. Key Risks Mitigates Refer Uninformed investors Lower level of governance Limited information Lack of oversight Different branding and clearly distinguishable from other NZX markets Risk warning where investors acknowledge differences between the New Market and other NZX markets Improved investor information via new website Requirement for a majority of independent directors Initial and on-going relationship with a New Market Advisor Required New advisor requirements Broader range of advisors Quarterly operating metrics Six monthly financial reporting Encouraged Regular online investors updates Three layers of oversight New Market Advisors NZX Regulation FMA Oversight of NZX Section 3 of the New Market Trading Rules For companies, Rules 5 and 17 of the New Market Listing Rules and, for Advisors, the New Market Trading Rules Section 5 of the New Market Listing Rules and Section 2 of the Procedures and Templates Section 2 of the New Market Trading Rules 14 MARCH 2014 4 of 20

Furthermore, the New Market will be built on NZX's existing infrastructure, providing a secure, trusted trading platform connected to brokers, registries, data providers, and accessible to domestic and global investors. As part of the development of this new market, NZX is seeking your review and input into the rules and procedures that will underpin the New Market. You can find information on how to make a submission in Part II of this document. 14 MARCH 2014 5 of 20

Part II Introduction This Consultation Memorandum relates to the proposed market rules for NZX s new growth Market ( the New Market ), as well as certain legislative exemptions that are necessary to accommodate the disclosure framework for this new market. The Market Rules that will regulate the New Market comprise: (a) New Market Listing Rules (a new rule set) and New Market Procedures and Templates, (b) updated Trading Rules (being amendments to the NZX Participant Rules to incorporate the New Market Advisor requirements); and (c) updated New Zealand Markets Disciplinary Tribunal Rules (which will require consequential amendments for the New Market). There are two parts to the consultation: (1) The first part contains NZX s consultation as to whether the New Market should be subject to a periodic disclosure framework rather than continuous disclosure. This first stage of NZX s consultation is described in Part VI of this consultation memorandum, and submitters are directed to the specific questions raised in Part VI. (2) The second part contains NZX s consultation in relation to the Market Rules that will regulate the New Market. The second stage of the consultation is described in Part VII of this consultation memorandum. Documents The following documents are attached to this consultation paper: a consultation draft of the New Market Listing Rules; a consultation draft of the New Market Procedures and Templates, that include the requirements for the New Market listing document; and a consultation draft of the New Market Trading Rules, that will amend the NZX Participant Rules to incorporate requirements relating to the New Market. The consultation drafts of the above documents contain the minimum requirements that support the periodic disclosure framework and are relevant to the first stage of the consultation. The New Market Listing Rules consultation draft is yet to be conformed to the NZX Main Board Rules in certain respects as identified by placeholders. The New Market Trading Rules consultation draft identifies the amendments that will be required to the NZX Participant Rules. The New Market Procedures and Templates only contain procedures and templates that are necessary for the New Market Listing Rules that support the periodic disclosure framework. Further advanced versions of these documents will be made available in due course. Timetable NZX would appreciate submitters making their submissions as soon as possible, and in any event no later than the dates specified in the timetable below: Event Date Submissions relating to Part 1 of the consultation: Disclosure Framework Thursday, 27 March 2014 Submissions relating to Part 2 of the consultation: Market Rules Friday, 4 April 2014 14 MARCH 2014 6 of 20

How to make a submission Please provide submissions in electronic format. Please reference your submission according to the particular Rule, Procedure or Template on which you are submitting or raising a question on in this memorandum. NZX may publish submissions received. Please indicate in your submission if you have any objections to the release of information contained in your submission. Please send your submission before the dates specified in the timetable above to: consultation@nzx.com. If you have any queries in relation to this Memorandum or the Market Rules for the New Market, please contact: Aaron Jenkins Head of Markets NZX Limited PO Box 2959 WELLINGTON Email: aaron.jenkins@nzx.com Phone: 09 309 3652 14 MARCH 2014 7 of 20

Part III Background Research suggests a significant number of small and mid-sized businesses in New Zealand require additional capital to grow to their full potential. They include smaller and higher growth companies with scalable business models, with regional or even global aspirations, along with more established mid-sized businesses with domestic growth potential. At the same time, a large number of New Zealanders would like to invest, either directly or indirectly, in these types of businesses. The benefit to these investors is the ability to invest in companies with higher growth rates (appreciating that this comes with a greater degree of risk) and access to smaller established businesses that were previously not accessible to public investment. The current market mechanisms are not effectively connecting the sources and users of capital in this area. There is a gap in New Zealand s capital markets infrastructure between smaller private markets, such as angel and venture capital, and the NZX Main Board, which is targeted at larger and more established businesses. Three structural changes in the capital markets provide the opportunity for NZX to develop and launch the New Market, a unique market for small and mid-sized companies: Increased savings: there is a growing pool of money to invest, particularly from fund managers, but also a broad range of investors; New technologies: the internet has fundamentally reshaped how we interact as individuals and businesses, but is yet to be fully harnessed to connect investors and issuers; and Regulatory framework: the recently passed Financial Markets Conduct Act 2013 provides flexibility to create different, more targeted markets. Including one that optimally appeals to the SME segment of the market and the investors in these companies. After engaging with key stakeholders and reviewing six different markets internationally (including AIM in the UK and the Nordic countries' alternative market, First North), research highlighted the need for a market solution that achieves the following objectives: Fills the gaps that exist in our capital markets infrastructure for higher-growth companies and mid-sized businesses to access expansion capital; Provides access to a broad range of investors while ensuring they understand the nature of the market in which they are investing and have an appropriate risk profile; Maintains the ownership connection between the company and individual shareholders; Provides timely and accurate information about each business performance to investors via a model that is appropriate to the scale of the companies involved; Provides independent or external support required to grow the business at a lower cost to a traditional listed company environment; and Serves the fundamental purpose of providing access to capital through a pool of active investors, in a liquid marketplace. 14 MARCH 2014 8 of 20

Part IV New Market Design Summary Key features of the New Market The New Market will be a simple, targeted, well informed, low cost and effective market. The key features of this market are described in this section. The New Market will have different branding and be clearly distinguishable from other markets operated by NZX. New Market Companies The target issuers for the New Market are small and mid-sized businesses, especially higher growth companies. To be eligible for listing a company must have: An expected market capitalisation of between $10m and $100m; A minimum capital raising of $5m prior to Listing (if capital is being raised); At least 50 shareholders; and A free-float of 25%. New Market Companies - Documentation and Disclosure New Market companies will not need to provide prospective financial information ( PFI ), for the Initial Public Offer ( IPO ). Instead New Market companies will provide projections against Key Operating Metrics to provide investors with an understating of the underlying drivers of business performance. This elimination of the PFI is expected to simplify the IPO process and substantially reduce listing costs. New Market companies will operate in a periodic disclosure environment. New Market companies will give quarterly business updates to the market, and immediately notify the market if one of a pre-determined set of events occurs through an interim update (refer to section 5 of the New Market Listing Rules). This will reduce the cost and complexity of continuous disclosure, while ensuring investors are informed of a change in a company s performance. Investors Before buying shares on the New Market, an investor must: Acknowledge that they understand the differences between the New Market and the other markets operated by NZX and must have an appropriate risk profile for investing in New Market companies; and Open or use an existing brokerage account with an NZX Participant and comply with the NZX Participant s know your client account opening processes. New Market Advisors NZX approved New Market Advisors are expected to provide structured, standardised support for New Market companies before and after listing. New Market Advisors can bring companies to the New Market and provide ongoing advice and assistance to New Market companies in relation to compliance with the New Market Listing Rules. Current NZX Sponsors, which include full service brokers and specialist corporate finance advisors, may apply to be New Market Advisors. NZX intends to attract additional parties as New Market Advisors to give potential New Market companies a broader range of potential advisors. Market Participants Market participants who are currently accredited as Trading Participants by NZX to facilitate trades on NZX s Main Board and Alternative Market are able to perform the same functions on 14 MARCH 2014 9 of 20

the New Market. Additional responsibilities of Trading Participants for this market will be reflected in changes to the existing Participant Rules. Brokers who are currently accredited as Advising Participants by NZX are able to perform the same functions on the New Market. Market Makers / Liquidity Providers For every New Market company, a market maker will provide liquidity support services for that New Market company after listing. This may be for a limited initial period after listing e.g. for a certain number of years or until a pre-determined level of liquidity has been achieved. In some cases the New Market Advisor will provide market making services for a New Market company. The market maker will be approved by NZX to provide liquidity support services on the New Market. Research Providers Every New Market company will have published research on the company. NZX will arrange for a research provider to provide research services for each New Market company after listing. In some cases the New Market Advisor will provide research services for a New Market company. Operations and Infrastructure The New Market is built on NZX's existing infrastructure: trading and clearing systems connected to brokers, registries, data providers, and accessible to domestic and global investors. The New Market will have its own separate website that will not be part of nzx.com, however company information and quotes for the New Market will still be available on nzx.com. Status of NZAX In the near future, NZX will continue to run the NZX Alternative Market (NZAX) business as usual. In the longer term, NZX intends to operate the Main Board and the New Market only. These two equity markets will be clearly differentiated based on a company s size, growth rate and stage of the business lifecycle. Differences between the NZX Markets The table below sets out the key differences between the New Market, the NZX Main Board and the NZAX. Area New Market NZX Main Board NZAX Investors Self-certify risk tolerance by completing a Risk Check Registration available on the New Market website Market Risk Warning must be reviewed Know Your Client (KYC) Open access (subject to KYC) Open access (subject to KYC) Issuers >$10m market cap, >$5m raise in IPO At least 50 shareholders, 25% free float At least 3 directors, at least >$5m market cap At least 500 shareholders, 25% free float At least 3 directors, No rules At least 50 shareholders At least 3 directors, no 14 MARCH 2014 10 of 20

Area New Market NZX Main Board NZAX half of the board must be independent Disclosure Quarterly reporting with immediate disclosure list Liquidity Open daily, shorter market hours Market makers, marketprovided research 2 independent directors Continuous disclosure Open daily 10am- 5pm Not provided independent director requirement Continuous disclosure Open daily 10am- 5pm Not provided Simplicity and lower cost Short, relevant, standardised listing documents Project against key operating milestones instead of PFIs Templated, standardised, initial and ongoing market disclosure Paperless communication to the maximum extent possible Shorter listing rules Post-listing support from NZX and Advisors No standardised listing documents PFIs required (subject to Securities Act requirements) No templates and procedures Long complicated rules Some post-listing support No standardised listing documents PFIs required (subject to Securities Act requirements) No templates and procedures Long complicated rules Some post-listing support Online Website will be centre of investor and issuer community Generate demand for offers Electronic communications Broad range of information available online Brokers/Advisors Revised advisor requirements Explicit aftermarket support Some information about issuers Market data Resources, e.g. listing rules Informal aftermarket support Some information about issuers Market data Resources, e.g. listing rules Informal aftermarket support 14 MARCH 2014 11 of 20

Part V Regulatory Overview of the New Market The New Market will be operated by NZX, which is a registered exchange for the purposes of section 2B of the Securities Markets Act 1988 ( SMA ). NZX will apply to the FMA for the New Market to be licensed as a registered market under the SMA. The provisions contained in Part 5 of the Financial Markets Conduct Act 2013 ( FMCA ) relating to the licensing of market operators such as NZX will take effect from 1 December 2014. If accredited as a registered market under the SMA, the New Market will transition to become a licensed market for the purposes of the FMCA, at that time. NZX will apply for appropriate legislative exemptions for the New Market because the New Market will not operate subject to continuous disclosure and the New Market listing document will not meet the requirements of a prospectus under the SMA or a product disclosure statement ( PDS ) under the FMCA. Part VI of this consultation memorandum contains the first part of NZX s consultation in relation to the New Market in which NZX is seeking submissions regarding the New Market s disclosure framework. A new section will be added to the NZX Participant Rules to accommodate the New Market. These additional Rules will allow candidates to be accredited as New Market Advisors who can bring companies to the New Market and provide ongoing advice and assistance to New Market companies in relation to New Market Listing Rule compliance. The Participant Rules will also require NZX Trading Participants to comply with additional obligations (such as ensuring clients are qualified to invest) in relation to the New Market. The New Market Listing Rules will govern the conduct of the New Market companies and are designed to be short and simple. The New Market Procedures and Templates will include the content requirements of the New Market listing document and the business updates to be made by New Market companies. Trades on the New Market will be cleared and settled on the NZCDC Settlement System. The Clearing and Settlement Rules and Templates and Depository Operating Rules and Templates together provide the rules for settlement by New Zealand Clearing Limited of transactions on the Clearing. No changes are required to these Rules to accommodate the New Market. Breaches of the New Market Rules and NZX Participant Rules may be referred by NZX to the New Zealand Markets Disciplinary Tribunal ( NZMDT ). Consequential amendments will be made to the NZMDT Rules, in this regard. New Market companies will appoint market makers to ensure that there is sufficient liquidity on the New Market. Market makers will enter into a market maker agreement that governs the powers, duties and obligations of the market maker. NZX will supervise the conduct of market makers trading on the New Market. Part VII of this consultation memorandum contains stage two of NZX s consultation in relation to the New Market in which NZX is seeking submissions in relation to the Market Rules for the New Market. 14 MARCH 2014 12 of 20

Part VI Disclosure Framework New Market disclosure framework The New Market disclosure framework comprises the New Market listing document and ongoing periodic disclosure obligations, as described below. New Market listing document New Market companies will not prepare a full prospectus prior to listing but will instead be required to prepare the New Market listing document. The New Market Procedures and Templates will set out the content requirements for the New Market listing document. The New Market listing document is intended to be similar to the PDS that will be introduced as part of Phase II of the FMCA. Until the register of offers of financial products is operational, additional information relating to an offer made by a New Market company will be available on the New Market website. NZX understands that the preparation of PFI is one of the highest barriers to private companies listing due to the compliance costs and risks associated with the preparation of that information. NZX will therefore not require the New Market listing document to include PFI, rather New Market companies will provide projections against key operating milestones for their business for the two consecutive accounting periods following listing. NZX understands that this will be the most material difference between the New Market listing document and the PDS. A consultation draft of the New Market Procedures and Templates that contain the requirements for the New Market listing document is attached to this memorandum. Periodic Disclosure The New Market is designed to be simple, low cost and effective. To meet this objective New Market companies will not operate in a continuous disclosure environment but will be subject to periodic disclosure. New Market companies will give quarterly business updates to the market. These business updates will include information as to how the New Market company is performing against the Key Operating Milestones that it identified in its listing document and will also provide a description of any major changes or developments that have occurred since the last business update. New Market companies will provide the same preliminary, half-year and full year financial reporting as NZAX listed issuers. As IFRS specifies the format for interim reporting, no template has been included for the preliminary announcement in the New Market Procedures and Templates. New Market companies will also be required to immediately provide the market with an interim update if, for example, the New Market company has entered into a major transaction. Interim update events are set out in schedule 5A of the consultation draft of the New Market Listing Rules. The interim update requirement is designed to ensure that the market is provided with sufficient information for investors to be well informed. New Market design features relevant to the disclosure framework Certain features of the New Market support the application of the New Market disclosure framework rather than continuous disclosure, these are described below: New Market listing document health warning The New Market Procedures and Templates require a health warning to appear at the beginning of the New Market listing document. The health warning will state that the New Market differs from other markets operated by NZX and that the listing document does not contain all information that would be included in a Main Board listing document such as a prospectus (prepared under the SMA), or a PDS prepared under the FMCA. 14 MARCH 2014 13 of 20

Investor eligibility A NZX Advisor will be required to provide a certificate to NZX, prior to NZX accepting a candidate for listing as a New Market company. The certificate must state that all subscribers in the initial public offer are qualified to trade in the New Market. NZX Trading Participants will be eligible to trade on the New Market but will be subject to additional obligations when doing so. In particular, before placing a buy order on the New Market, a NZX Trading Participant will be required to satisfy themselves that their client is suitably qualified to trade in the New Market. To be qualified to invest in the New Market an investor must be sufficiently experienced to understand the characteristics of the New Market and how the New Market differs from the other markets operated by NZX, and have an appropriate risk tolerance for such an investment. New Market Advisors and NZX Trading Participants may wish to satisfy themselves that an investor is qualified by requesting that an investor provides a validation number to demonstrate that the investor is registered on the New Market website and has completed a financial needs analysis. An investor must receive a copy of the risk warning that describes the differences between the New Market and NZX s other markets (which will also be included in the New Market listing document), prior to investing or trading. New Market Advisor ongoing assistance A New Market company must engage a New Market Advisor to provide advice in relation to New Market Listing Rules compliance for the first three years after listing. The New Market Advisor will be required to inform NZX if it becomes aware that a New Market company, or a director or senior manager of a New Market company, has or is likely to commit a significant breach of the New Market Rules, Securities Act, SMA or FMCA. New Market companies must have an insider trading policy The New Market Listing Rules require New Market companies to adopt an insider trading policy that prohibits directors and officers from trading in company shares other than within the 10 business days after the company has released a business update or preliminary announcement. Any breach of this policy must be reported by the New Market company to NZX. New Market website The New Market will have separate branding and its own website, in order to distinguish it from other markets operated by NZX. Information about the New Market will be available on other approved NZX websites. The New Market website will include the ability for investors to register and complete a financial needs analysis. This will assist the investor in determining their appropriateness to invest on the New Market. Legislative considerations NZX will require relief from the SMA and FMCA to implement the New Market disclosure framework, as described further below. Listing document The Securities Act requires an investment statement and prospectus to be prepared for offers of equity securities to the public and the Securities Regulations 2009 set out the content requirements for those documents. NZX will apply to the FMA for an exemption from those requirements pursuant to section 70B of the Securities Act, to allow the New Market listing document to be prepared for New Market company IPOs. The Ministry of Business, Innovation and Employment is currently consulting in relation to the content requirements for the PDS. NZX will apply for any necessary relief to enable New Market companies to prepare the New Market 14 MARCH 2014 14 of 20

listing document rather than the PDS, once the content requirements for the PDS is finalised by way of regulations. As noted above, the requirements for the listing document are currently included in the New Market Procedures and Templates, however the form of the exemptions will determine where these requirements are finally located. NZX considers that it is appropriate to require New Market companies to prepare the New Market listing document, rather than a prospectus, investment statement or PDS because: The content requirements for the New Market listing document will ensure that investors are well-informed because the disclosure will be simple and easy to understand and will provide investors with an understanding of all material matters relevant to the offer; NZX has undertaken preliminary consultation and understands that the largest compliance cost in preparing an offering document is the preparation of prospective financial information. It is critical that the New Market is low-cost to bridge the gap that currently exists in New Zealand s capital markets infrastructure; Investors will be informed that the New Market listing document contains less information than a prospectus or PDS through the health warning contained in the New Market listing document; The requirement that New Market Advisors certify that all investors in an IPO are qualified to trade on the New Market is designed to ensure that investors in the New Market understand the characteristics of the New Market and that the New Market differs from other markets operated by NZX; and The New Market will be branded differently from other markets operated by NZX and information about the New Market will be available on a separate website, to ensure that it is apparent that the New Market differs from other markets operated by NZX. Periodic disclosure Section 36L(1)(b) of the SMA and section 331 of the FMCA allows the FMA to disallow listing rules that do not provide for appropriate continuous disclosure of material information that is not generally available to the market. However section 36E of the SMA allows the Minister to grant exemptions from this requirement, and section 351 of the FMCA allows the Minister to make regulations removing that requirement. The FMCA specifically contemplates that the Minister could make regulations that do not require continuous disclosure provisions to be contained in the listing rules but instead allow periodic or event based disclosure or some other way of dealing with information asymmetries in the market. Under the FMCA, the Minister can also provide for any reduced disclosure obligations to be Part 5 market provisions, thereby giving the reduced disclosure requirements statutory backing. NZX intends to seek both an exemption from the SMA and regulations under the FMCA to enable the New Market to operate subject to periodic disclosure. NZX would support regulations that provide that the New Market disclosure framework has the effect of an alternative market disclosure obligation and are market provisions for the purposes of the FMCA, such that the FMA may take enforcement action in relation to breaches of the New Market disclosure framework. NZX considers that such relief is appropriate for the following reasons: 14 MARCH 2014 15 of 20

There is currently a gap in the capital markets infrastructure, such that certain companies struggle to source capital and investors complain that they cannot get access to these investments. NZX has consulted with a number of parties and understands that continuous disclosure is a barrier to listing for private companies who perceive it to be difficult, costly, and a source of undue risk for directors. It is fundamental to the New Market s success that the disclosure framework allows it to be low-cost and simple for New Market companies. It is also critical to the New Market s success that investors are well informed and that NZX can operate the New Market in a fair, orderly and transparent manner. NZX considers that this is achieved through the design of the New Market s disclosure framework, which will ensure that the market receives appropriate information in a timely manner. The design features of the New Market, described in this part of the consultation memorandum, support the appropriateness of the New Market s disclosure framework. In particular: o o o o Investors will receive appropriate health warnings through the listing document and will only be able to trade once an NZX Trading Participant has assessed the investor as a person who understands both the characteristics of the New Market and that the New Market differs from the other markets operated by NZX; New Market companies will be required to engage a New Market Advisor to provide advice for the first three years after listing. This requirement is intended to assist the New Market company in meeting its obligations under the Listing Rules, including its disclosure obligations; The New Market will have its own webpage and information will be available about the New Market on nzx.com. The New Market will be separately branded from NZX s other markets to identify it as a growth market that is not suitable for all investors; The New Market Rules will require New Market companies to have insider trading policies in place and to report any breaches of such policies to NZX, to reduce the risk of trading occurring where there is information asymmetry in the market. Submissions sought NZX is seeking submissions as to whether: the general design features of the New Market are such that the New Market disclosure framework, as outlined above, is appropriate for the New Market; and the requirements for the New Market listing document contained in the New Market Procedures and Templates are appropriate and will ensure that NZX is able to operate the New Market in a fair, orderly and transparent manner. 14 MARCH 2014 16 of 20

In particular, NZX is seeking submissions in relation to the following questions: Question for Consultation Documents 1. Will the New Market disclosure framework ensure that timely, accurate and understandable information is provided to investors in relation to financial products to ensure that NZX can operate the New Market in a fair, orderly and transparent manner? Sections 1 and 5 and Schedule 5A of the New Market Rules consultation draft New Market Procedures and Templates consultation draft 2. Will the New Market disclosure framework reduce compliance costs thereby promoting innovation and flexibility in the financial markets while taking account of the differing needs and objectives of issuers and investors? Sections 1 and 5 and Schedule 5A of the New Market Rules consultation draft New Market Procedures and Templates consultation draft 3. What impact will the use of the New Market disclosure framework for the New Market have on the integrity and effectiveness of the New Zealand s securities markets, and investor confidence more generally? Sections 1 and 5 and Schedule 5A of the New Market Rules consultation draft New Market Procedures and Templates consultation draft 4. Are there public benefits from the exemption from the continuous disclosure requirements that will allow the New Market disclosure framework to apply to the New Market? Sections 1 and 5 and Schedule 5A of the New Market Rules consultation draft New Market Procedures and Templates consultation draft 5. Are the circumstances identified in the New Market Listing Rules as to when interim updates are required appropriate, and are there other circumstances when interim updates should be provided? Schedule 5A of the New Market Listing Rules consultation draft 6. Are the content requirements for the business update sufficient to ensure that appropriate information is provided to the market on a regular basis? Business Update Template contained in the New Market Procedures and Templates 14 MARCH 2014 17 of 20

consultation draft 7. Is it appropriate for New Market companies to be able to reset their key operating milestones by means of an interim update? Schedule 5A of the New Market Listing Rules consultation draft 8. Are the New Market listing document requirements sufficient to ensure that all appropriate information is provided to the market at the time the New Market company makes a public offer? Listing Document Template contained in the New Market Procedures and Templates consultation draft Rule 4 of the New Market Listing Rules consultation draft 9. Are the requirements for New Market companies to maintain an insider trading policy a sufficient barrier to insider trading such that periodic disclosure is appropriate? Rule 16 of the New Market Listing Rules consultation draft 10. Are the health warning requirements for the New Market listing document, the use of a separate New Market website, and the pre-trade permissions sufficient to ensure that investors understand the differences between investment in the New Market compared to other markets operated by NZX? Listing Document Template contained in the New Market Procedures and Templates Risk Warning contained in the New Market Trading Rules consultation draft 11. Do you agree that the New Market disclosure framework provisions of the New Market Rules should be market provisions under Part 5 of the FMCA, which will allow the FMA to take enforcement action in relation to any breach of those provisions? Sections 1 and 5 and Schedule 5A of the New Market Rules consultation draft New Market Procedures and Templates consultation draft Please note that NZX would appreciate submissions in relation to this part of the consultation as soon as possible, the deadline for making these submissions on the matters discussed in this Part VI of the memorandum is close of business Thursday 27 March 2014. 14 MARCH 2014 18 of 20

Part VII Part 2 Consultation - Market Rules Introduction The New Market will be governed by Market Rules, being the New Market Listing Rules (a new rule set): the New Market Procedures and Templates: the New Market Trading Rules (being amendments to the NZX Participant Rules to incorporate the trading and advisor requirements for the New Market): and the NZMDT Rules (which will require consequential amendments for the New Market). New Market Listing Rules The New Market is designed to be simple, effective and low-cost, therefore the New Market Listing Rules must be clear and concise. The Rules have been structured so that operative provisions are contained in the body of the Rules, with the Schedules to the Rules informing the Rule requirements. The New Market Rules contain clearer bright-line tests and less complicated exemptions than included in the Listing Rules for other markets operated by NZX. NZX intends to provide guidance as to the interpretation of the Rules in Guidance Notes. Although the New Market Rules are in a different format to NZX s other Listing Rules they address similar matters, in particular in relation to governance, changes in capital, major transactions, related party transactions, disclosure and transfer restrictions. One notable difference is that the New Market companies may undertake transactions by making transaction announcements (similar to pre-break announcements made by NZAX issuers) in certain circumstances. New Market Procedures and Templates The New Market Procedures and Templates are made pursuant to the New Market Listing Rules and can be enforced as if the requirements they contain were included in the New Market Listing Rules. The New Market Procedures and Templates include the requirements for the business update and the New Market listing document. New Market Trading Rules NZX will amend the NZX Participant Rules by incorporating a new section that will apply to the New Market. All existing NZX Trading Participants will be eligible to trade on the New Market, but will need to comply with the additional requirements set out in that section. Current NZX Sponsors will not be able to act as a sponsor for the New Market without being accredited as a New Market Advisor. NZX will provide further guidance as to the requirements for accreditation. NZX will also annually assess a New Market Advisor s performance against its obligations to determine whether to re-accredit it as a New Market Advisor. Documents The following documents are attached to this consultation paper: a consultation draft of the New Market Listing Rules; a consultation draft of the New Market Listing Procedures and Templates, that include the requirements for the New Market listing document; and a consultation draft of the New Market Trading Rules, that will amend the NZX Participant Rules to incorporate requirements relating to the New Market. Submissions NZX is seeking general submissions in relation to the attached consultation drafts of the New Market Rules. Please note that NZX would appreciate submissions as soon as possible, but 14 MARCH 2014 19 of 20

that the deadline for making submissions on the matters discussed in this part VII of this memorandum is close of business Friday 4 April 2014. 14 MARCH 2014 20 of 20