One of the big issues for investors, and indeed all New Zealand, this year is the future of the New Zealand Stock Exchange (NZSE). It's big from an investor's point of view because what ever happens may have a significant impact on the value of listed companies, and it's big on the country's economy front because the exchange is a major capital-raising vehicle.
There are two issues which, while separate, are related. One is the demutualisation of the exchange from a member owned society to a company structure. Wellington Central MP Marian Hobbs has ensured this issue will be dealt with in the first quarter by agreeing to sponsor a bill in Parliament that will allow the process to happen.
Demutualisation is old hat for the financial services industry now and there should be little problem with the process.
The second issue, the future of the NZSE, is separate, but linked. Should it merge with the Australian Stock Exchange, should it maintain the status quo or should some other path be taken?
At this juncture it's impossible to tell where this issue will go.
What does appear certain though is that the management of the exchange appears determined to push its case for a merger to a conclusion whatever the opposition. So far it has held its cards close to its chest. It has revealed only the scantiest of information about why a merger is good business sense, what the pros and cons are, or how it would benefit the country.
It's showed little inclination to publicly discuss the issues, and it has hired the reputed hard-man of PR, Shandwick, to run its information campaign.
With so little information out there it's hard for people to come to a well-considered opinion.
When considering the options people need to have in the forefront of their minds that the primary goal of a stock exchange is as a vehicle for raising capital.
This is the main benchmark that any proposal should be considered against. The fact that the NZSE is highly efficient and can transact trades at the fraction of the cost of the ASX is a minor issue.
What New Zealand's economy needs is an efficient market where its businesses can raise capital to grow, expand and employ people. All options need to be considered against this benchmark.
On the business front people need to consider the future of stock exchanges around the world. Are stock exchanges as we know them the right vehicle for raising capital and trading shares in the new millennium, or are they a hangover from the 20th century? Has globalisation and technology made them a threatened species.
Globally exchanges are grappling with this issue, and most of the major bourses talked about cross-border merger and acquisitions. However, the success rate of clinching any of these deals has so far been low.
Stock exchanges are acting like a bunch of sex-craved teenagers at a party, all intent of trying as many partners as possible. None have yet found their ultimate life-long partner.
One has to wonder if all this M&A talk is just a last gasp attempt at empire protection in the facing of an advancing threats from globalisation and technology?
The other major threat is Electronic Commerce Networks or ECNs. ECN are essentially electronic trading platforms where shareholders can buy and sell shares. They are big in the US and New Zealand has one tiny ECN in the shape if iExchange.
The beauty is that they are cheap to run, can operate across borders, 24 hours a day and they are efficient.
The issues facing the exchange and its members are huge at present and they have an impact on New Zealand's economy. A decision of this magnitude should not be left to the exchange itself.
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