Study looks at merging NZX system

Reserve Bank and NZX respond to investment community concerns

Concerns from the investment community have led the Reserve Bank and stock exchange company NZX to look at merging their securities clearing and settlement services.

An announced feasibility study of a joint venture follows advice from the government-appointed Capital Markets Taskforce and appeases sharebroking firms' voiced concerns about NZX's capabilities to upgrade and run its own system. The Reserve Bank and NZX would not elaborate on the proposal.

Capital Markets Taskforce chairman Rob Cameron said the settlement and clearance system had been singled out for attention early on.

"After the financial crash all the major capital markets have looked at their central clearing systems. It's about transparency and risk, but the other reason is around efficiency and the ability to accommodate innovation."

He said the task force had come to the conclusion that New Zealand needed a single system "equivalent to the transmission system of our capital markets".

Clearing and settlement systems act as an independent platform for the electronic transfer and safekeeping of securities. Bonds, shares, fixed interest securities and other financial products are traded through the system, which matches payment and delivery of investments.

A letter from the Securities Industry Association to NZX chief executive Mark Weldon at the start of the year outlined a reduction in confidence in the sharemarket operator, lack of consultation and high levels of staff turnover at NZX.

Weldon has since said there did not need to be two clearing systems and suggested the Reserve Bank's operation could serve the markets well enough on its own.

NZX's systems and services revenue, which includes clearance and settlement revenue, was $2.7 million in the year to December 2008.

The Reserve Bank's settling and clearing system Australclear made $452,000 net profit in the latest financial year, less than half of that made in 2008. Average daily transactions were down by 13 percent and revenue fell by 8.6 percent.

Cameron said the proposal to join the bank's and NZX's systems meant big gains, better risk management and better efficiency.

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