The Capital Markets Report

The full report is here. Some of the recommendations and my comments are:

• simplifying and standardising product disclosure sothat investors have clearer knowledge of what they are investing in (such as through short, prescribed, plain-English documents and an explicit warning on complex
products)

Not controversial.

• broadening the range of high-quality equity offerings for retail investors by encouraging partial listings of:

• central and local government-owned companies
• agricultural businesses
• local subsidiaries of financial services firms

I think that is a great plan. There are not many NZ listings, so investors like me are forced to invest more and mroe money in Australian stocks. Partial listings of some SOEs would be a great boost to the local capital markets, and keep more investment at home. The disciplines of being a listed company would help many SOEs improve their performance.

The early signs are that National may have a policy for the 2011 election of allowing some minority listings – that would be a good thing.

• improving the links between public listed and private markets by facilitating the development of more lightly regulated exchanges that are able to develop rules and be owned or operated by fully regulated exchanges

The rules of the main public exchange are not suitable for smaller companies, so this is good.

• developing a specialist agricultural capital market centre – ranging from the commercialisation of innovation through to public markets that cater to cooperatives’ particular requirements and the development of derivatives markets for our agricultural products

That’s a fascinating idea. It could even become a global leader in agricultural capital markets.

• fundamentally reviewing the Securities Act to allow for the above, in a way that plays to New Zealand’s reputation as an honest and transparent economy, and provides clarity about which investors are able to invest
in which markets and the nature of the regulatory regime around each market

I’m not sure the Act needs rewriting. Often the problem has been lack of enforcement. I recall the case taken by Stephen Franks and Roger Kerr personally against a company director, when the Securities Commission declined to act. They were successful also IIRC.

• eliminating tax and regulatory biases between different types of investment (for example, property versus financial assets) or different governance arrangements (such as direct investment versus PIEs).

At present, many investment decisions are based on the tax advantages for that type of investment. That is not optimal, as decisions should be on the likely return and associated risk with an investment.