Unlisted seeks ministerial exemption from new financial market rules

Unlisted, the share trading platform, is petitioning Commerce Minister Craig Foss for exemption from a rule change requiring it to be licenced by the Financial Markets Authority, saying the cost would be prohibitive for its service for smaller companies.

Under the Financial Markets Conduct Act, which came into force in December, Unlisted had to either apply for a licence from the FMA, seek an exemption, or shut down. Unlisted currently requires minimal disclosure, keeping costs low for the 17 securities that trade on its platform.

"The Unlisted market provides transparency and price visibility to smaller companies without the cost overlay that you would get with a fully licenced market and there has always been such a market in New Zealand," said David Wallace, a director at Armillary, which manages Unlisted. "We see it as an important part of the New Zealand capital markets and to go and add a whole lot more cost to a hell of a lot more companies is an impost directly on the shareholders."

An annual review by the FMA, required if Unlisted were a licenced market, would costs hundreds of thousands of dollars, Wallace said.

"It's one hell of an impost on a small business which has a revenue line in the hundreds of thousands of dollars," he said. "If we were required to go through that process with the FMA then effectively we wouldn't have an economic business."

Companies trading on Unlisted include Silver Fern Farms, New Zealand's biggest meat processor and marketer, Queenstown tourism company Skyline Enterprises, and biotechnology company PharmaZen. For some, the possibility of increased regulation has prompted them to review their commitment to the Unlisted market.

King Country Energy, the biggest electricity retailer in the Waitomo, King Country and Ruapehu districts, told its shareholders yesterday it plans to move its listing to the NZX as it expects the Unlisted platform to become more heavily regulated.

"Although Unlisted is currently an unregulated securities market, it is currently expected that Unlisted will become subject to some form of regulation in the medium term, following the new Financial Markets Conduct Act," King Country Energy chairman Toby Stevenson said in a letter to shareholders.

"This has provided the board with the opportunity to consider the advantages and disadvantages of remaining on Unlisted, in comparison to other alternatives," Stevenson said. "The board has concluded that an NZX listing would provide a more transparent market and better liquidity for shareholders and, accordingly, that it would be in the best interests of the company and shareholders. The board has resolved to take initial steps to prepare for NZX listing."

Shares in Taumarunui-based King Country Energy last traded at $4.10, valuing the company at $104 million.

The NZX, which is New Zealand's only registered stock market operator, last year gained a ministerial exemption for its soon-to-be-launched market for smaller companies, NXT, allowing less onerous disclosure obligations and reducing costs for issuers in a bid to attract small to medium sized businesses to list.

Wallace said Unlisted's application for exemption is a path which had been agreed with the Ministry of Business, Innovation and Employment and the FMA. The application was made at the end of February and is expected to take three to four months, he said, adding talks with officials were "progressing favourably".

"All our discussions with MBIE and the FMA have been positive and supportive of the path that we are taking," he said.

Unlisted is owned by Wellington-based Efficient Market Services, whose shareholders include many people in the finance industry.

The Financial Markets Conduct Act replaced the 36-year-old old Securities Act.

(BusinessDesk)