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Unlisted mulls FMA licence as deadline looms, NZX rival gets exemption

Unlisted, the share trading platform run by Armillary Private Capital, is mulling an application to be a registered market or seek to be exempted ahead of a Dec. 1 rule change after rival NZX gained a ministerial exemption.

Under the Financial Markets Conduct Act, which replaces 36-year-old old Securities Act, the unregistered market will either need to apply for a licence from the Financial Markets Authority, seek an exemption from market rules, such as continuous disclosure requirements or shut down. Unlisted currently requires minimal disclosure, keeping costs low for the 18 securities that trade on its platform. In the past 20 working days, it recorded 39 traded amounting to 253,519 shares, according to its website.

"The board has been reviewing the options - apply for a licence or an exemption, deconstruct or reconstruct the market or just shut it down and sell up," said David Wallace, director at Armillary. "We have determined that we're going to explore an application to the minister either seeking an exemption for our market or a licence with specific exemptions."

Earlier this month the NZX's new market received an exemption from Commerce Minister Craig Foss, allowing New Zealand's only registered stock market operator to run its proposed new market with less onerous disclosure obligations, reducing costs for issuers in a bid to attract small to medium sized businesses to list. The new market, which will ultimately replace the NZ Alternative Market, will have its own website with branding distinct from the NZX and a pop-up warning where investors are asked to acknowledge the market has fewer rules than other NZX markets. Unlisted's website has a pop-up warning.

The ministerial exemption will apply under the Securities Act until December, when the Financial Markets Conduct Act comes into effect. Cabinet has agreed to enact regulations to allow the exemption under the new law. NZX must now satisfy the Financial Markets Authority that the market's rules will support the alternative disclosure requirements, before launching the new board.

Wallace said NZX's new market probably wouldn't be a threat to Unlisted's status, and that the ministerial exemption had given them guidance on where to head with the unregistered market.

"Yes it is a direct competitor but I think our focus is on a slightly different set of companies than maybe that market is set up to service," he said.

The cost of maintaining a licence was the main deterrent for seeking one from the FMA, Wallace said. The operator pays for the annual review by the regulator as well as absorbing costs in monitoring and implementing the rules, which could become a significant cost for a small business such as Unlisted, he said.


Comments and questions

Go one step further, Unlisted, and lobby for similar treatment as the NZX. You may need some grease however to smooth your path as the NZX has.

NZX is a protected monopoly - protection accorded to it by successive National government ministers who are/were successfuly lobbied by vested interests.

Remember Maurice Williamson in the 1990s rejecting the introduction of a takeover code similar to that prevailing in other countries like Australia, US and England. The way Lion Nathan was allowed to be taken over to the detriment of minorities was no accident.

Then Simon Powers with his decision to exempt NZX from FMA oversee in favor of self-regulation (!!!!) before he retired as a minister for lucrative posts in the private sector.

Now we have Craig Foss allowing minimal disclosures. Seems like the answer for the NZX to its failure to oversee the finance companies debacle and the sordid listings like Plus SMS is to lobby (successfully) to make the debacles legal.

Unlisted should be able to get the same exemptions as the NZX relabeled NZAX board.

I do wonder if NZ is big enough for two though - NZAX and Unlisted both have very poor liquidity but combining them probably wouldn't solve this either.

Competition will also be good and hopefully some of the equity crowdfunded companies (of which I think the Armillary are trying to set up a platform) will end up on one these public exchanges.

Best result would be to drop NZAX and keep Unlisted

Makes sense but is not going to happen. Look at who's on the Board of the NZX and how well they have lobbied the National Party government to maintain NZX's monopolistic profits - without putting any money back into the markets.

Took a Labour government to introduce the Takeover Code and strengthened insider trading laws.