Weldon outlines more changes

New Stock Exchange chief executive Mark Weldon reckons just about everything except the exchange’s main board needs overhauling.

He told the Wellington branch of the Financial Planners and Insurance Advisers Association yesterday that the New Capital Market is "only suitable for oil explorers" and by the end of the month the exchange should have a discussion paper out on how it should be re-formatted, he says.

As for the "grey" market of public companies which aren’t listed but which are traded using stock exchange systems, "I think it’s pretty hypocritical of us at the exchange to facilitate trading and make revenue out of stocks we don’t regulate."

Nevertheless, he sees a market in small to medium sized companies as critical to both the exchange’s and New Zealand’s future.

"The growth of New Zealand isn’t going to come from Telecom or Carter Holt. It’s going to come from small and medium companies," Weldon says.

He also wants to encourage the growth of derivatives such as warrants and to remove tax and other obstacles from the practice of short selling. That is, borrowing stocks you think are going to decline in price, selling them in the hope that you can buy them back cheaper before they have to be returned.

Currently some investors, such as hedge funds, can’t invest in the New Zealand market because strategies such as short selling are rarely available, he says.

While hedge funds have a bad reputation in some quarters, they can help promote liquidity.

Weldon is also critical of the amount of offshore investment in equities. While hard figures aren’t available, he suggests community trusts and pension funds are allocating the equities parts of their portfolios offshore in a ratio of about nine to one.

While no one would argue all the equities part of a portfolio should be invested in the New Zealand market, "I would prefer people to have to make the case to invest offshore rather than here," he says. At present, it’s the other way round.

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