NZX today published the final version of its updated listing rules. These new rules will take effect on 1 January 2019, subject to a six-month transition period.
The new NZX Listing Rules are the first holistic rewrite of the Main Board/Debt Market Listing Rules since their introduction in 2003. They also mark the beginning of a new market structure, with the NXT and NZAX markets to be consolidated under a single equity market with NZX’s Main Board issuers.
The rewrite of the rules has been driven largely by NZX’s current five-year strategy, which is aimed at reinvigorating its core market business. As such, the new rules incorporate provisions to help facilitate listings of a broader range of financial products and issuers, including issuers that are already listed overseas. NZX has also focussed on making the rules fit for purpose for smaller issuers (given the removal of the NXT and NZAX markets), listed funds and debt issuers, and has introduced further investor protections with a view to increasing confidence and participation in its markets.
The new NZX Listing Rules and an accompanying explanatory paper are available here.
For existing issuers, the new rules will take effect on 1 January 2019, but with a six-month transition period to give NXT, NZAX and existing Main Board/Debt Market listed issuers time to put the necessary changes in place. During this transition period issuers will be able to elect to comply with the new rules. All issuers will be required to transition to the new rules by no later than 30 June 2019.
The transition process will involve a number of steps for most issuers. This includes identifying whether they currently have any existing waivers that they want to seek to continue to rely on, updating governing documents and ensuring they meet the new corporate governance requirements. NZX has set out detailed information here on the transition process, and the various class waivers NZX intends to put in place to facilitate that process.
For new issuers listing on or after 1 January 2019, the new rules will take immediate effect.
Still to come
NZX will be releasing new guidance and practice notes on certain aspects of the new rules by the end of November 2018. The new rules will also be supported by updated templates and other compliance tools to help manage compliance costs and ensure more effective delivery of information to investors and other end users.
Consultation on guidance notes for the new regime
In the interim, NZX is consulting on updated guidance notes for Spread, Backdoor and Reverse Listing Transactions and Continuous Disclosure.
NZX is also consulting on a new Governance guidance note to assist issuers to comply with their governance obligations.
Submissions on all four guidance notes close on 13 November 2018.
Key changes from the April 2018 Exposure Draft
The review process began at the end of 2017 with the release of a public consultation on a series of proposed reforms. This was followed by the release of an exposure draft of the rules in April 2018. Copies of past discussion and consultation papers, and the non-confidential submissions received, are available here.
The final version of the NZX Listing Rules is broadly the same as the exposure draft of the rules released in April 2018 (see our earlier update here), but there have been some notable changes made in response to submissions made on the draft version. These include:
reducing the proposed minimum market capitalisation requirement (from $15 million to $10 million) for listing as an issuer of equity, debt or fund securities, and reducing the proposed minimum spread requirements (from 300 to 100 non-affiliated holders) for listing as an issuer of equity or fund securities;
reverting back to the current New Zealand residency requirement of two directors for equity issuers, rather than requiring at least one director to be ordinarily resident in New Zealand or Australia, and removing the director residency requirement altogether for debt issuers;
removing the exception which applied to executive directors (allowing them to seek re-election at five-year intervals) from the usual director rotation requirements;
removing the reference to the “scale” of the issuer’s business as an alternative test for determining whether a transaction requires approval as a major transaction;
abandoning linking the definition of “Associated Person” with the definition in the Financial Markets Conduct Act 2013 in favour of a new stand-alone definition that is streamlined to align more closely with the test under that Act;
allowing debt issuers to include specified restrictions on transfers of debt securities in their governing documents without requiring NZX approval;
requiring voting at all shareholders’ meetings to be by poll, rather than adopting the original proposal to include this as a recommendation in the NZX Corporate Governance Code; and
introducing additional content and disclosure requirements for notices of shareholders’ meetings and proxy forms.
Same rules, but a new rule format
Main Board/Debt Market listed issuers will not find themselves facing an entirely different regulatory landscape when the new rules come into effect. The current Main Board/Debt Market Listing Rules (the 2017 Rules) were used as a drafting base for the new rules, however the 2017 Rules have been redrafted to make them clearer and more easily understood. They have also been organised into a more streamlined and simplified format, through:
a more modular approach to the different issuer categories;
the use of clearer headings and logical ordering; and
a reordering of the rules to prioritise the rules used most frequently.
The explanatory notes in the 2017 Rules have not been carried over to the new rules.
This has resulted in the main body of the listing rules (excluding appendices) being reduced from the current 156 pages to 81 pages.
NZX has also taken this opportunity to incorporate current NZX Regulation class rulings and waivers, as well as NZX practice notes (which have been published over the last two years) and some common individual waivers into the updated rules.
Key rule changes for existing Main Board equity issuers
A number of the substantive changes made to the 2017 Rules reflect NZX’s general aim of seeking to align its policy settings with international markets (and, in particular, ASX) where it made sense to do so. For equity issuers, the key changes include:
requiring issuers to disclose material information to the market when a director or senior manager “has, or ought reasonably to have, come into possession of the information in the course of performance of their duties”;
reducing the scope for dilution by reducing placements without shareholder approval from 20% to 15%, together with reducing the headroom for share purchase plans and ensuring any placement of amounts not taken up are subject to the overall placement capacity; and
encouraging pro-rata offers as the preferred method of raising additional equity capital (through recommendations in the NZX Corporate Governance Code).
The new rules also introduce a number of new governance measures, including:
simplification of the director rotation requirements to make them easier to apply in practice, and subjecting executive directors to the same rules on rotation; and
enhancing the director independence regime by recommending, via the NZX Code, that boards have a majority of independent directors (with a minimum requirement for two independent directors).
We would be happy to discuss these changes with you in more detail, and assist you with transitioning to the new rules regime. If that would be helpful, please get in touch with your usual Bell Gully contact or any of the partners listed above.