Mark Weldon announced today his perception that the NZ stock exchange is “fragile”.

The New Zealand government has called for a workshop to address the issues, Weldon stated that;

“I think New Zealand is reasonably fragile in some senses but I think were the New Zealand exchange to disappear, you really have completely hoisted the white flag and said we’ve got no hope.”

“All around the world, capital markets are important for broader economic growth and I think what you’ve got here shouldn’t really surprise anyone.”

I’m not sure there is much the government can do directly. Indirectly though there is plenty. As a start;

  • Invest in infrastructure to encourage businesses to form and grow (and eventually IPO)
  • Invest in governance for SME’s to allow them to grow
  • Create a dynamic and vibrant environment where business will want to stay (as opposed to selling offshore)
  • Look at the SOE issue – consider a partial divestment – Kiwisaver money needs to go somewhere and the NZX and SOE’s would seem like a natural place

The latest NZX Open magazine discussed the SOE issue while the next one (inside sneak preview) will look at ways to increase the number of sustainable, prosperous and locally domiciled entities on the NZX.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

3 Comments
  • Maybe they should look at their fees? It’s an expensive business to list. Also the sad fact is that there simply aren’t enough investors to support a big market here, yet. Not all companies need to list either. There are plenty of good reason to stay private.

    If we abolish interest and make loans on an equity basis then we might have a chance 🙂

  • Re: NZX is Fragile > http://diversity.net.nz/2007/10/16/nzx-is-fragile/

    This topic covers one of civilizations greatest economic challenges. The entire list of advocates, policy makers, regulators, issuers, investors, service or solution providers e.g. market participants that you have identified must think through how to make capital market models generate right-sized increments of micro equity to the SME segment.

    Ongoing mergers of stock exchanges to create global capital market entities will continue to raise the bar for the market cap value of companies that qualify to list in these mega markets. There is an inherent conflict between strategic goals of these market operators to maximum their profits by serving a global list of upper-tier, high market cap value companies and the need for capital market models that can cost effectively deliver right-sized increments of equity capital to the SME segment.

    This will become an ever greater problem for new generations of SME companies that need to list on a stock exchange so they can raise capital or provide liquidity for their investors.

    Through the Dubai / OMX transaction, NASDAQ continues executing a strategy that is designed to transform itself into a listing market for the highest market cap value companies in the world.

    NASDAQ’s effort to perfect this upper tier strategy is being done in a context of continually raising the qualifications bar for new companies to join its lower tier. One may easily review NASDAQ’s history of doing this in the United States for a glimpse of how it will play out as NASDAQ takes over other markets. Some version of the same statement can be made about NYSE acquiring ArcaEx and Euronext.

    I believe that this reality frames a global need to define an entry level SME capital market model. Extraordinary efforts and policy actions will be necessary to preserve an SME capital market segment as market operators continue their march to become global exchanges.

    The Dubai / OMX transaction will ultimately generate new tensions between NASDAQ’s long-term, upper tier strategy and emerging SME companies that have traditionally used a NASDAQ listing process as part of their growth strategy.

    This reveals the need for a model that can infuse right-sized, units of micro-equity capital into SMEs is further exacerbated by geo political considerations associated with countries that are in earlier stages of economic development. Remembering that NASDAQ got its start by serving the innovative emerging company segment may be the first step to thinking outside the box about how an SME capital market model and platform could be developed. This history indicates that there may be an opportunity for the NZX network to stimulate the development of capital market programs by stock exchanges that want to serve the SME segment even as NASDAQ/NYSE and other market operators continue become global upper tier platforms and stock exchanges.

    I recommend that you SME advocates and policy makers focus on creating measurements and reports about the effectiveness of existing entry level capital markets and stock exchanges and how they rank serving the micro equity capitalization needs of SME companies.

    I have identified more than 80 entry-level capital markets. This Global List is posted under the Alternative Markets section at http://www.smecapitalmarkets.net

    From my perspective, advocacy projects and policies that stimulate cross border listings, cross border trading and strategic alliances in the SME segment is the best way to ensure that there will be a viable and functioning entry-level capital market for SMEs.

    Some level of institutional support and mandates will be necessary to keep entry-level capital markets and stock exchanges focused on funding micro equity capital requirements in the SME segment and providing liquidity for their investors.

    Advocates and policy makers may be able to refine elements of the micro lending model into a micro equity capitalization model. However, they ought not to become trapped in a mindset that this is the only way to go forward because the cost of producing information under an equity capital model causes a different kind of problem than the one that has been addressed in the micro lending model.

    SME advocates and policy makers can influence organizing and developing a viable SME capital market segment by focusing on measuring and ranking the results of market operators who constructively work in the SME capital market space.

    The current state of this measurement process is chaotic. Information pieces such as Grant Thornton’s “2007 Global growth markets guide” http://www.gt.com/staticfiles//GTCom/files/International%20publications/2007%20Global%20Growth%20Markets%20Guide.pdf stating “For most small companies, opportunities to raise money on an international stock exchange are limited.” While Thomas G. O’Connor’s study “Does Cross-Listing in the U.S. cause value?”, http://www.ccmconsults.com/pdfs/Crosslisting.pdf offers analytics that it does and my own 2006 SB-2 Capital Market Research Report shows that a substantial number of SME level companies that undertake SB-2 registrations and trade in the United States are foreign owned entities that also trade in their home country markets. In other words there is evidence that cross border listing and trading helps SMEs raise capital and create value but this is not the common wisdom.

    Given the current state of reporting about SME capitalization, I recommend that advocates and policy makers begin by evaluating the global list of market operators who address the SME segment to create and publish measurements and rankings that reflect how they support capitalizing the SME segment. Measuring the levels of strategic alliances that these cross border listing and trading programs supports is a necessary requirement to report about the success or failure of this approach.

    In the initial phase, it will be necessary to measure qualitative components as well as quantitative elements. Going forward a credible group must issue accepted and recognized units of measurement that third party SME advocates, policy makers and market participants can use to focus on working with entities who have the best practice or highest level measurements.

    ArcaX and LSE AIM prove that modest levels of institutional support can create highly functional stock markets in only a few years. A few groups of SME advocates and policy makers may be in an ideal position to become the institutional spark plug that generates the next iteration or entry-level capital markets and stock exchanges.

    My observation is that the best results will come from working with entities that support the vision of creating models and platforms that can cost effectively flow right-sized, micro-equity increments of capital to the SME segment.

    In closing, allow me to state in the strongest possible language that creating a market model and platform that flows increments of micro equity into the SME segment is a global economic development policy problem that deserves higher levels of attention and societal resources.

    Your blog is a call for action. Hopefully, my comments will help you and others identify and take a few action steps.

    Sincerely,
    Brad Smith
    SME Capital Markets
    bradsmith@smecapitalmarkets.net
    http://www.smecapitalmarkets.net

  • Brad – some good points and the distinction of being the longest comment on my blog ever! Thanks!

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