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NZX won't cancel Lyttelton Port trades after routine notice included takeover details

NZX, the stock market operator, says it won't cancel trades in Lyttelton Port Co [NZX: LPC] shares made after the release of a substantial security holder (SSH) notice that included first news of a takeover proposal for the company.

Port Otago sent an SSH notice to the NZX last Friday afternoon that announced it had entered a lock-up agreement for its holding of about 15.5 percent with majority owner Christchurch City Holdings (CCH), which intended to make a full takeover of the listed Lyttleton Port at $3.95 a share. Port Otago gave Lyttleton no advance notice of the plan, which included a special dividend of 20 cents.

Investors who saw the notice drove the price up 24 percent to $4.10, leaving some shareholders disgruntled that they had been blindsided and demanding the trades be reversed. The stock was subsequently halted for the release of statement from CCH about the plan.

About 42,534 shares changed hands in 13 trades ranging from $3.30 to $3.59 between the SSH being released at 2.24pm and the stock being halted at 2.57pm, for a total value of less than $150,000. Lyttelton Port has 102 million shares on issue, although more than 90 percent is held by CCH and Port Otago. The shares traded recently at $4.10, valuing the company at $419 million.

"NZX is confident that all market participants, traders and investors, both on the buy and sell sides, had access to the same information at the same time in relation to the proposed takeover," the market operator said in statement, as part of its review of Friday's events.

Because Lyttelton Port had no prior knowledge of the proposal it didn't breach any disclosure rules, while CCH and Port Otago are not listed companies required to disclose anything beyond their SSH filings, NZX said. It described Lyttelton's lack of prior knowledge as "unusual" but doesn't consider there has been a breach of its rules for market participants.

Still, the stock market operator said it is reviewing its process for the release of SSH notices.


Comments and questions

They have missed the main aspect here, a takeover notice was embedded in routine disclosure (SSH) notice that most people would not read and it is an exact announcement of future price of a share (takeover price is provided)-no subjective judgement on the investors leading to differences of opinion as to future likely value. If all share market investors need to be glued to the screen while the market is open, then why bother put on any trading halts

The NZX Participant Rules (specifically rule 10.15.6) states the following;

The NZX may exercise any or all of it's powers under rule 10.15.5 in respect of an error if;

c) the NZX is satisfied that the exercise of its powers is necessary or desirable to ensure the integrity or certainty of any NZX market...

It seems clear to most that this screw up has harmed the integrity and certainty of the NZX, so therefore the NZX has the power to reverse the trades, but won't...

NZX deny that an error was made, but managed to correct this so called non-error by issuing a trading halt 33 minutes after the first announcement that spilled the beans.

All existing sell offers were mostly or all taken up by one broker (A NZX member and shareholder) within 5 minutes of the SSH announcement . This makes a nonsense of the statement by NZX that "all market participants, traders and investors, both on the buy and sell sides, had access to the same information at the same time in relation to the proposed takeover," If they do not cancel the trades they should at least compensate those adversely affected. At least one complaint about the NZX;s actions has been lodged with the Financial Markets Authority. If the integrity of the NZ sharemarket is to be maintained, they should make NZX pay for their obvious mistake. NZ already has a shonky reputation in relation to insider trading without this.
An ethical issue also arises about the conduct of the broker making the buys, were they acting for clients or trading on their own behalf?