Author Name: Tim Bennett, CEO, NZX Limited
1. Could you give us a bit of background about your exchange? Creation date, main product(s) traded, few data on market sizing (market cap, volumes)
NZX is the operator and regulator of securities and derivatives markets and provider of trading, post-trade and data services for securities and derivatives, as well as the provider of a central securities depository. NZX is the only registered securities exchange in New Zealand, and is also an authorised futures exchange. Its wholly owned subsidiary, New Zealand Clearing and Depository Corporation, is the operator of a designated settlement system under Part 5 of the Reserve Bank of New Zealand Act 1989.
NZX equity markets had a total market capitalisation of NZ$87 billion representing just under 40% of New Zealand's gross domestic product or GDP. At the same date, the debt market had a market capitalisation of NZ$13.5 billion.
NZX cash markets, which encompass the NZX Main Board, Alternative Exchange and Debt Market, are home to a range of businesses. With a total of 255 listed securities, NZX's Cash Markets business includes 164 equity securities, 85 debt securities, and 6 other securities.
As well as the exchange business, NZX has a diverse portfolio of other complimentary businesses. NZX provides high quality information, data and tools to support business decision making. We build and operate capital, risk and commodity markets and the infrastructure required to support them. We strive to make a meaningful difference to wealth creation for our shareholders, and the individuals, businesses and economies in which we operate.
Other activities of NZX are:
- An online and hard copy publisher of information, news and data relating to the agriculture sectors in New Zealand and Australia.
- An operator of an electronic grain trading platform through Clear Grain Exchange, Australia's only provider of online trading and clearing services for the buyers and sellers of grain.
- A provider of passive funds management products through the Smartshares family of Exchange Traded Funds (ETFs) and the Smartshares KiwiSaver Scheme, smartkiwi.
- Market operator for New Zealand's wholesale electricity market, under contract from the Electricity Authority (the government entity responsible for the operation and regulation of the New Zealand electricity market), and the Fonterra Shareholders' Market, under contract from Fonterra, a multi-national dairy cooperative.
NZX also has a 50% shareholding in LINK Market Services Limited, a securities registry business providing registry services to both listed and unlisted New Zealand companies.
Date of establishment, legal status (i.e. joint stock co, or nonprofit)
NZX's history dates back to the gold rush of the 1870s with the creation of a regional stock exchange in Otago, New Zealand. To help unify broking transactions and regulate exchanges deals, metropolitan exchanges joined together in 1915 to form the Stock Exchange Association of New Zealand. In the 1970s the regional exchanges merged to form one national exchange based on the waterfront of the capital, Wellington.
In 2002 NZX's members, made up of New Zealand broking houses, voted in favour of demutualisation. In December 2002, the New Zealand Stock Exchange, as it was then known, become a listed company and officially changed its name to the New Zealand Exchange Limited, now trading as NZX.
2. How active are foreign investors in your exchange? How accessible is your market? IT connectivity, access/restrictions for foreign investors
Leased Line and VPN connectivity
The NZX market is easily accessible and NZX has a number of approved 'leased line' service providers, offering redundant connectivity to the trading, clearing and market data services. The service providers are:
- BT Radianz
- IPC Networks
- Telecom New Zealand
NZX also offers site-to-site VPN connectivity.
NZX implemented the NASDAQ OMX X-stream trading platform in October 2012. Traders can access the market using the X-stream trader workstation, or via an approved independent software vendor (ISV) solution, using the FIX messaging API. NZX has implemented FIX 5.0. The approved ISV's are:
- CQG (Dairy Derivatives Market only)
NZX uses the TCS BaNCS system for clearing. Clearing participants can access the market using the TCS BaNCs 'thin client' or via an approved ISV solution, using the BaNCs messaging API or static data solution. The approved ISV's are:
- Dion Global
- ION Trading
Market Data Feeds and Static Data
NZX offers two market data feed options for customers and data vendors, these being the NZX proprietary data feed and FIX market data.
The proprietary feed is a comprehensive data feed containing all trading data, corporate action information, market announcement headlines and other relevant supplementary data. The FIX market data feed only caters for data generated from the trading system.
Customers and data vendors can also access EOD, historic or reference data via the static data solution.
The primary data vendors include:
- CQG (Dairy Derivatives only)
- SIX Telekurs
- Thompson Reuters
3. The breakdown of the investors, breakdown of companies listed by sector (financial, industrial and other services.)
Overall, local New Zealand investor ownership of NZX listed companies has increased by 2.1% to 66.9% in the year to 30 June 2013 as foreign investors sold down stakes, reversing the trend we saw in the 2000s, where foreign majority owners tended to take companies private.
In October 2013, the investor base in NZX listed companies were made up of:
- 23% NZ Managed Funds
- 26% NZ Retail Investors
- 18% NZ Strategic Stakes
- 9% Offshore Strategic Stakes
- 24% Other Offshore Owners
Listed companies represent a broad range of sectors and industries, including energy, property, technology, primary production, investment, manufacturing, retail and services.
4. What new project/product are you currently working on?
We have significant growth potential across most of our businesses and are working on a number of projects to deliver against this.
In the capital markets, significant projects are the launch of equity derivatives and the development of a new market for small to medium sized entities, as well as an ongoing focus on driving new listings to increase the depth of New Zealand's equity markets.
Other major projects across the rest of the organisation include driving growth in dairy derivatives and expanding the product set in our soft commodities business, launching new ETF products to increase the range of passive funds management products in the New Zealand market and broadening the depth and breadth of our agricultural data offerings.
5. What are the challenges you see in your market today and in the future?
New Zealand's capital markets are small relative to the overall size of the economy relative to many global peers. However, New Zealand's markets are beginning to show the results of a series of well-planned structural changes. In the year to June 30 2013, retail investor ownership in the market rose by 3.1% to 26.4%, which was the first sizable jump since 2006.
While driven partly by the economic environment, the increase in retail participation is also the result of the New Zealand Government's share offer programme (where minority shareholdings in several state owned companies have been sold via IPOs), a number of other new listings, and a renewed interest in equities as an asset class.
An improved regulatory environment has supported this, in particular through the introduction of the Financial Markets Authority in 2011. In addition, the increased savings in New Zealand under the KiwiSaver superannuation scheme introduced by the Government in 2007 is another positive change underway. With upwards of $17 billion under management, KiwiSaver is expected to grow to over $80 billion by 2026.
The challenge is increasing the range of quality companies for this capital to be invested in and hence this is a key area of focus for NZX.
6. How do you assess your exchange`s position at a time of increased globalization?
As a smaller exchange, NZX is in a position to drive new initiatives and be innovative. We have a greater breadth and diversity to our business than most exchange operators and several of our businesses potentially have relevance to global and not just local markets, particularly our soft commodities and agricultural information businesses, though these are still at the early stage of their development.