The Taskforce’s paper consists of six groups of recommendations for New Zealand’s capital markets. According to the report, if implemented, the ideas will improve the contribution of capital markets to the country’s economic growth and bring significant fiscal benefits to New Zealanders.

The CMDT has proposed that regulations be established to improve financial advisory services and information available to investors, along with improving investment literacy. Suggestions include replacing investment statements and prospectuses with more standardized disclosure documents. Warnings should be applied to high-risk and complex investments products.

The paper identifies several perceived gaps in the capital market, and aims to remedy them. Key recommendations include partial listing of central and local-government companies, government intervention in developing the local annuities market and establishing New Zealand as agricultural capital market hub.

According to the CMDT, the Reserve Bank and the New Zealand Stock Exchange should collaborate to improve the country’s settlement and clearing infrastructure. Also, tax biases between different savings and investments need to be eliminated through options such as : the risk-free return method, denial of depreciation deductions on buildings, a general capital gains tax, or an asset specific capital gains tax.

The full CMDT report can be viewed on the Ministry of Economic Development website.

Photo by Remon Rijper

Even measured via a long run average prior to 2003, the NZX has been trading at a below value median of 8.2%, but this figure took an uncharacteristic sharp turn downwards in late 2007 to reach its current level of 33.2%. The NZX index has fallen over 1000 points since May, 600 of those have been since the post September “Financial Crisis”. It would seem that this trend will continue with the NZX falling further amidst the increased volatility of international markets.

Commenting on the report, Rob Mercer of Forsyth Barr research, said that while current prices are technically very good value for money, he does not expect to see an increase in purchasing as even though the shares are well priced they are still subject to the anxiety felt about today’s financial environment. He also said that with this lack of confidence that there was a lack of depth on the buy side of the market.

While previous government statements placed the timeline for the scheme as being before Christmas Day. This announcement seems to be a warning or an indication of intent so far, as there were a number of details omitted by Michael Cullen concerning the Bank Deposit Scheme. Predominantly the missing details are those surrounding the involvement and requirements from the Australian government and banks in regards. However, previous statements made by Michael Cullen indicate that there might be a requirement for participating Australian banks to float set amounts of their shares on the New Zealand Stock Exchange.

This quickening of pace is not thoroughly welcome by some key banking figures. ANZ National’s chief executive Graham Hodges, maintained throughout statements made that there is no need to “rush” into the bank guarantee scheme. He also said that the New Zealand market is at a comfortable level of liquidity at the moment, one which did not require immediate action.

Michael Cullen claimed that the New Zealand government has been considering actions such as this scheme for a long time, and would have preferred to announce them at a later point but because of Australia announcing an equivalent scheme, it had to be done now.

The Australian Securities and Investments Commission (ASIC) banned all forms of short selling on the 19th of September, widening the previous ban on “naked” short selling to include “covered” short selling also. While this action was a response to the turmoil caused on the ASX by naked short selling, the NZX does not see enough short selling activity to warrant such a ban at this point.

Geoff Brown, the NZX markets development manager, was quoted as saying that New Zealand firms are already required to disclose any short sales and that in the eyes of the NZX, short selling was a legitimate activity. He also said that the moves taken against short selling by other markets (ASX) were an extreme response.

Covered short selling is when an investor would sell a share they do not own at that point, only having a contract to hire or borrow the share for a time. This is done with the expectation that the share will soon fall in price, allowing the trader to purchase it at back at a price lower to what they sold it at.
Naked short selling is similar but the investor does not even have a contract to borrow the share, just the obligation to buy it back within three days of the sale.

The Australian Securities and Investments Commission (ASIC) banned all forms of short selling on the 19th of September, widening the previous ban on “naked” short selling to include “covered” short selling also. While this action was a response to the turmoil caused on the ASX by naked short selling, the NZX does not see enough short selling activity to warrant such a ban at this point.

Geoff Brown, the NZX markets development manager, was quoted as saying that New Zealand firms are already required to disclose any short sales and that in the eyes of the NZX, short selling was a legitimate activity. He also said that the moves taken against short selling by other markets (ASX) were an extreme response.

Covered short selling is when an investor would sell a share they do not own at that point, only having a contract to hire or borrow the share for a time. This is done with the expectation that the share will soon fall in price, allowing the trader to purchase it at back at a price lower to what they sold it at.
Naked short selling is similar but the investor does not even have a contract to borrow the share, just the obligation to buy it back within three days of the sale.