Sunday, February 21, 2010

NZX needs competition

Monopolies are only good for one party, the monopoly itself.

The NZX , the arbiter of The New Zealand Stock Exchange [NZX.NZ], is one of those parties and boy what a party the NZX , its broker shareholders and institutional investors have been having for many years.

The party has been good for the NZX and its members and mates but the hangover remains for mum and dad investors and the regulation of NZX listed companies as a whole.

The NZX , its shareholder members who are brokers and those close to them, have always been favoured over mum and dad on the street. Price sensitive information flows to the favoured come first and fast and breaking of rules by broker members/shareholders have always been hand slaps rather than anything concrete that would forbid any further breaches of their own NZX rules.

This has two effects. Enriching brokers at the expense of mum and dad shareholders and leaving those same mum and dad investors dubious about investing in the stockmarket in the first place.

The New Zealand Stockmarket has suffered this malaise for many years and it shows especially in its poor performance on the whole since the stockmarket crash of the late 1980s.

Investors would rather buy housing than invest in something that they trust. They simply don't trust the stockmarket and the NZX its mates and their shenanigans are the reason for this.

Why would you spend good money on something you cant trust because some parties have advantages over others?

The irony here as well, is that the NZX is supposed to be an unbiased stockmarket regulator that doesnt favour anyone, not the least of which would be its own listed company NZX , which is itself listed on its own stock exchange.

The antidote to this stockmarket sickness and bias?

Either have a completely independent stockmarket regulator or allow competition in this area.

We know that competition helps provide better service, cheaper prices and a more level playing field for consumers and the same would be true of the stockmarket sector.

I have been arguing for ten years now that surely in this Internet age investors who want to buy and sell shares could be matched together more efficiently and with more expicit fairness other than other dealing with a monopoly like the NZX.

Much like peer to peer downloading, intermediaries could easily be set up to get together willing buyers and sellers with oversight by a third independent party. Even buying shares directly from the company you want to be invested in would be more appropriate. Why have a third party clipping the ticket (your stockbroker) when investing directly you could remove that cost.

Stockmarket investors in New Zealand deserve to have a fairer, more independent way of investing in NZX listed companies. The current system is simply not working in an appropriate and explicit way.

Until then expect continued mediocre performance from the stockmarket.

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