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FMA questions NZX disclosure practices

July 17, 2011

FMA questions NZX’s disclosure performance

Duncan Bridgeman 

The National Business Review

Friday, July 15

 

Sharemarket operator NZX is under investigation for potentially breaching its own continuous disclosure rules because  of comments made by chief executive Mark Weldon.

Following inquiries by the National Business Review this week the Financial Markets Authority (FMA) confirmed it was looking into issues that surfaced in the media last Friday about the NZX-owned Clear grain exchange business.

In a statement to NBRFMA chief executive Sean Hughes said the agency was aware of the NZX’s own enquiry into Clear.

“We have asked some questions of NZX and we are following their inquiry with interest. We expect to hear their conclusions late this week or next.”

At issue is the financial performance of Clear grain exchange business, which NZX bought for $8.8 million in 2009 as part of a diversification and expansion programme.

NZX is suing the founders of Clear for alleged breach of warranty, claiming the grain exchange did not meet their obligations under the deal and had not met its targets.

However, it emerged last week that founder Grant Thomas had warned NZX he was ready to file his own legal action seeking up to $17 million in “earn out” payments, claiming among other things that NZX failed to properly resource the company.

The legal scrap is linked to an employment dispute which resulted in NZX being ordered by a Melbourne court to pay Mr Thomas $A259,705 plus interest and costs.

Transcripts of evidence presented by Mr Weldon at the hearing in May revealed NZX was not prepared to pay the additional “earn out” portion of the sale and purchase agreement because the business had not performed.

Clear was showing a “substantial economic loss,” Mr Weldon said.

However, that has not been the description of the business in any of NZX’s public disclosure documents this year.

Late last Friday NZX shares fell 4% and the company announced it had engaged its auditor KPMG to advance an external audit process for the Clear business. It said that process should take about 10 days.

Mr Hughes said as a listed entity on its own exchange NZX was subject to the powers of the special division of the NZX Markets Disciplinary Tribunal.

But because this was an issue relating to continuous disclosure the FMA has a statutory responsibility to oversee the compliance of listed issuers (including NZX) with their continuous disclosure obligations.

According to recent guidelines published by  NZX Markets Supervision, continuous disclosure is

  • a mechanism to ensure that the market is informed of relevant information at all times;
  • a critical part of ensuring that New Zealand’s listed capital markets are efficient, transparent and fair; and
  • designed to promote equality of information in the market so that no investor is disadvantaged against another and all investors are able to make informed investment decisions.
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