Thursday, April 9, 2009

The NZX continues to lose ground with retail investors

How can you tell if you are important to a business? that is, whether they want your business in the first place and what will they do to keep it.

Lets take a look at the New Zealand Stock Exchange [
NZX.NZ] and see how they stack up for customer service.

Lets ask a number of important questions to give the NZX some sort of customer rating.

Do they look after all their customers?

The answer would have to be a clear no.

Why so?

Well the NZX in all its infinite wisdom gift their larger customers with preferential treatment simply because of the financial/old-schoolboy/business connections between those larger customers and with the NZX itself, that is, it is in the NZX' best interests for example give their mates in the same industry as them advantages over smaller shareholders in recent capital raising's; the likes of Kiwi Income Property Trust [KIP.NZ], Fletcher Building [FBU.NZ], Freightways Ltd [FRE.NZ], and Nuplex [NPX.NZ] because of the backscratching and arse licking that has to go on in the financial industry to make the wheels turn in New Zealand simply because of its small size.

One day the favour will be returned you see. Its wrong but it is true but it happens constantly.

Retail customers-small investors like you and me-are clearly shafted.

Are market rules broken to advantage the "big boys" ?

Well yes they are.

Back to the recent capital raising's, we had the NZX waiver several NZX rules to allow companies to buy preferential shares on preferential terms without consulting smaller shareholders who would have their shareholdings diluted through the issue of more shares.

To add insult to injury any offer made to smaller shareholders to buy shares was not on a pro-rata basis and capped at a set dollar rate, to be scaled down depending on demand.

The little guy gets it again.

But wait there is more.

Access to live market news data is unfairly distributed because unless you are lucky enough to have an NZX terminal you get the market news 20 minutes after the big boys get it.

Boy us retail investors are really on the back foot there.

Does the NZX take rule breaking seriously enough?

In my opinion the answer would have to be a big fat NO.

In my 11 years of market watching I have seen stock prices either dramatically rise or fall days before good or bad news about a company is finally revealed to the little guy. Its out there, an individual insider or some broker is trading on it and big money is made.

Surely it would be easy to find the culprit?

Well, yes it would but little detailed investigation is done into this by the NZX except the usual question to the company concerned about "whether you were aware of any company news that would have affected the company share prices, etc. etc.."

The NZX has access to trading records and irregularities in trading could be hauled up for question.

What does all this do Darren?

Well clearly it puts retail investors at a large disadvantage when it comes to investing in the New Zealand stockmarket.

Rules are broken and there are few consequences, favouritism to insiders is rife and ignored when it should be discouraged and in the vain hope that someone might be found guilty of any shenanigans there are usually very light consequences.

No wonder then retail investors or "Mum and Dad" if you like have deserted the NZX in droves for finance companies, term investments, residential housing and ultimately overseas stockmarkets, when you have different rules for different customers then those given the short end of the stick are simply going to go elsewhere.

Mark Weldon was charged with improving such things in our capital markets when he started as the boss of the NZX early this century but he has failed to halt the decline in New Zealanders investing in the NZX and ultimately Kiwi businesses and for that he should be soundly ashamed.

4 out of 10 from me.

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  1. Just a quick answer to your question, "Surely it would be easy to find the culprit?"

    Up until March 2008 market manipulation in this country was not illegal, their was no law governing it, NZX had rules against the brokers but not their clients, so yes easy to find the culprit, but you could not do anything as it was not against the law.

  2. Thanks for the detail Anon but even given the facts you detail it seems little is done to seriously pursue the insiders, on all sides, doing their thing.


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