M SAINSBURY Last week when the discount share broking firm Access Brokerage collapsed the spotlight turned on the New Zealand Stock Exchange and it's 36 year old CEO former Olympic swimmer Mark Weldon. Once again the integrity of the New Zealand capital markets was being questioned. Since Mr Weldon was appointed to head the exchange two years ago he's run a high profile campaign to try and boost confidence in the New Zealand sharemarket. No surprise then that his response to the Access crash was immediate. He promised to pursue legal action against those responsible and has paid 460 thousand from the exchange's fidelity to Access investors who had lost money. Now even offering that money drew criticism from some of the exchange's investors but it also drew praise from market commentators like Brian Gaynor who's long been a critic of the quality of the governance of the New Zealand market. Mr Weldon is in our Wellington studio now. Thanks for joining us Mark. For a start do you know now what actually happened at Access Brokerage?
MARK WELDON We've got I think you'd call it a 90% confidence level of what occurred, how it occurred, what we don't have is that 100% confidence level that you would need to take things to the next stage and make formal accusations.
M SAINSBURY I mean during the week and I think both the principals of the firm they've said part of the blame must lie with the exchange, do you accept that?
MARK WELDON Not at all, I think that's - I mean there's a lot of impolite comments I could make as to that type of tactic, but I think it's quite obvious what they were trying to do and that was just deflection.
M SAINSBURY But you've kicked in the fidelity fund, you put your money where your mouth is, does that imply that you accept some responsibility?
MARK WELDON It's an interesting question and we thought about it and really made a decision that look it's absolutely the right thing to do that's what the money's there for, we came out on day one and said there's a whole bunch of legal things we've gotta take care of but we've gotta take care of the clients first, and we weren't gonna not do the right thing for fear of people thinking well what are they trying to hide, I mean if we start living in that type of world it's a bit sad really.
M SAINSBURY I mean doing the right thing didn't endear you with some of your own investors.
MARK WELDON Well I think those investors may have had a quite short term approach, in the long run if people aren't happy if they aren't confident in the market and the way the market's operated they won't invest in it, companies won't list in the long run, that's what will drive value both for the market and nationally actually so if those investors had have looked out three to five years rather than three to five days their decision set probably would have been a little bit different.
M SAINSBURY Now you kicked in that money, obviously you got the BNZ going on this as well. What happens if another case pops up, I mean I presume that's the fidelity fund gone isn't it?
MARK WELDON Well the fidelity fund is two things, it's cash and it's the ability to draw more cash from the brokerage community and other constituents, so there is a safety net still there for any circumstance which we're pretty sure and really hope doesn't not occur.
M SAINSBURY We have to ask this question, could this happen again?
MARK WELDON I think there are, if we look at this whole picture there are four phases here really, the first was figuring out what went wrong and shutting the company down, the second was getting the investors the money back, the third which you're asking about is what do we need to review. In the short term what we've done is get statutory declarations off all of the firms under a High Court Judge that the trust accounts are in balance and on Monday we will be formally requiring external audits and accounting of all of the very intricate cashflows that occur between the bank accounts here, so the firms have offered to do that, we're gonna make them do that, and we think that's important for confidence. Short answer I don't think it's probable.
M SAINSBURY But there was an auditing process in place with regards to Access so can people have confidence in the fact that look it's being audited, some might look at this and say well hang on they were audited it still went bad.
MARK WELDON That's a very fair question. What we had in place were two types of protections, the first was we actually went in and physically inspect and that's for behaviour for how they treat clients, for their system and we also look at the aggregate numbers in their books, then we rely on declarations from the managing principals as to client accounts and we also rely on declarations from the bank as to the nature of trust accounts. So we've got a mixed approach of look at some things and receive statutory declarations and that's an approach that we'll have to look at but I don't think from what we know about this case in this instance that there are some things whether it's in brokerage firms, banks, law firms, or in the criminal world that you can stop and we need to be careful that we don't throttle the life out of anything by creating laws for behaviour that is just bad.
M SAINSBURY I mean there's a balance to be achieved there isn't there, and I spose this comes back to one of the things that you've tried to rectify with this market that with the excesses of the 80s when it was seen as the cowboy operators, so it comes back to integrity doesn't it, and one of the other issues I spose in terms of that, and we see it across the Tasman at the moment, it's concerns that just generally investors are not getting information out of companies. Do you accept that that's a problem?
MARK WELDON I think you're right, the key word is integrity and it's hard to figure out what that means, you certainly can't define it, I think one of the Supreme Court Justices in the United States said when asked to define obscenity he said I don't know it but I know it when I see it. I think integrity's the same thing, clearly a key component of that is as much information to investors as they need and really importantly that all investors get the same information at the same time, so retail investors, mum and dads, if they want to be looking for it get it at the same time as the professionals. We've got rules in place now that we didn't have two years ago to make sure that happens actually.
M SAINSBURY Is that enough I mean would you be looking at a stricter regime on forcing companies to declare, I mean there's issues say from executive bonuses and things which suddenly appear which investors say hand on a minute you know we should have known this stuff. Is there room for you to take a more proactive part in pushing for that sort of thing?
MARK WELDON Well we actually do have a regime in place recently implemented Section 10 of our rules which is very boring to read but what it does say is that anything that is material and it defines material in all sorts of ways, has to be disclosed immediately to the market upon it becoming known, so if that bonus is of a number that is material to a company the company has to tell it if you're paying your assistant a 25 hundred dollar holiday bonus then you clearly don't need to, and it's hard to draw a bright line but the rules I think do work pretty well, at least they're drawn pretty well they're new. We haven't really had any complaints in the last nine months since they been in and we're confident the information set is getting better and better.
M SAINSBURY Well we'll talk about that information and the confidence in the sharemarket again after the break and when we come back we look at the future of the sharemarket and should New Zealand actually have its own exchange.
M SAINSBURY You're back with Agenda and we're back with Mark Weldon in our Wellington studio. Mark we were talking before the break about the integrity in the market, are you worried that it's taken a knock over what's happened this week?
MARK WELDON Clearly anything that potentially has affect on reputation is of concern, it's of concern to us as the owner operator of the market, but it's of concern at a more national level which is markets actually are important and New Zealand's market has been put in a back cupboard for quite a while and it's pretty important that it works.
M SAINSBURY Is it though I mean not important that it works, but is it important that we have our own one, because it's been mooted over recent years as look you know let's pack up the shop here and we may as well just list in Australia.
MARK WELDON Yeah I thought about that a lot before I came back to this job, if I didn't think that there was a real and valid reason for us having our own market I wouldn't have come back and done this but the key answer here is that we talk about it like one market, but really the world is two markets. If you're a global company General Electric, Deutzche Post, you could be listed anywhere, companies, people will invest in you you can raise money globally, it doesn't matter. Why we need a local market is because smaller companies that are trying to grow tend to only be able to raise capital from their local constituents so think about Just Water which floated about six weeks ago or Pumpkin Patch, is someone sitting in New York or in Darwin actually gonna have a whole lot of interest - probably not, so what you actually need is a market that facilitates growth for smaller companies and allows local investors to invest in those companies, that's really why we need this thing.
M SAINSBURY When you say local investors I mean are you talking about the big institutions, what is the difference between you know the mum and dad shareholders and the big institutional shareholders?
MARK WELDON Not too much, I mean they're both after the same things, they're after companies that they like, they're after management they trust, they're after returns that are reasonable and good, and reasonably stable and they're after a market that they can be confident in. The way they go about their business might be quite different but they want the same things.
M SAINSBURY But something like's happened this week is gonna have a different influence isn't it because for the small shareholders, the people you know playing with their retirement funds or the hobby investors if you like, they may be shaken by this but your big institutionals it's not gonna make too much difference is it?
MARK WELDON Well it's a very interesting question, the big institutions do an annual review of every market in the world and you sort of on a list or you're off a list, there's not really a lot of grey in the middle and they didn't look at this, I've spoken with a number of them, they saw it ring fenced, they saw some action taken quickly, they put it down to human behaviour, they didn't see it as having any negative impact at all and won't affect their willingness to invest here. What we've gotta try and do is make sure that message is the same one to the retail investor who sits down and reads the newspaper headlines.
M SAINSBURY Now amongst the gloom I spose at the start of the week was a ray of sunshine possibly for the markets here with Michael Cullen talking about the basic compulsory super investment fund, and that would if it went ahead surely would provide a lot of capital to be invested in the New Zealand markets.
MARK WELDON That's right it would and this is what happened in Australia ten years ago, the short thing - the cycle that happens is there's savings, it needs to find a home, when companies and entrepreneurs and people know that there's capital out there that they can reach ideas start to generate wealth and the whole economy goes gangbusters it's great, then we get a lot of talk a lot of rhetoric about growth, we get a lot of rhetoric about the knowledge economy, great words, not many people connecting the dots that you actually need a capital market to provide you know the fuel for that thing, an idea without money to fund it is you know a sad thing.
M SAINSBURY Does the Stock Exchange reflect the economy?
MARK WELDON It does, if you walk around every country and ask how's the economy the first thing they'll say well the market's up the market's down, it's stable, it's performing well. The second thing they tend to talk about is interest rates which is the cost of capital in borrowing and then the third is generally some more qualitative sentiment, things are going well that type of stuff, but absolutely it builds in people's expectations for the companies in that country and there's no better reflection.
M SAINSBURY I mean you say you know there are good reasons for maintaining your own market but is one of the problems that we don't attract enough of the big investment, there's not enough to lure people on to our market, apart from those domestic investors?
MARK WELDON Absolutely, the single stat that should worry everybody at least financial stat that should worry people most over the 90s was our rate of business investment was atrocious and it continued to be atrocious until recently. The thing we're most encouraged about at the Exchange is that over the last 18 months we've been in the top five in new capital raised across the planet on a per capita basis for our local market, so that to us is if we're thinking five ten years down the track, is this market relevant, is it providing some sort of future for people, that's the number we care about more than anything else so we're quite encouraged by that.
M SAINSBURY We said at the start that even Brian Gaynor who's been a critic certainly of things here, gave you a bit of a pat on the back this week because he said that you showed leadership throughout this, how important was it for you personally to pull this off this week?
MARK WELDON For me personally it was very important, it was important that everybody at the Exchange actually cared about the same stuff, we were very unified in that we want to make this the right thing for investors, there were very few dissenting voices, let's take a legalistic hands off old school approach, so that was important and it was important to get it done effectively and efficiently. It was a real challenge and challenges are you know you can look at them as good things, they're generally unpleasant when they occur but.
M SAINSBURY Now it's one thing to deal if you like with the bush fires that occur, what about the bigger picture, how are you actually going to grow investment in the market in this country?
MARK WELDON In the last 18 months we've really called fixing the franchise so we've changed the index we've changed the rules, we developed a new market the AX for smaller companies, we've done some pretty interesting technological things which are far too complex to explain but simply they mean people from offshore can access capital markets here a lot cheaper and a lot more quickly, so we try and put all those things together and we think that we've got the conditions in place for it to work, obviously we can't you know make the companies perform well but we've gotta get the conditions right.
M SAINSBURY You'll get your bonus this year?
MARK WELDON Oh I don't know, same as you I guess we'll wait and see till December.
M SAINSBURY Mark Weldon thanks for joining us on Agenda. After the break we talk to the ASEAN Secretary General about securing a closer relationship with Asia.
MARK With the United States remaining a very reluctant free trade partner New Zealand is increasingly turning its focus to Asia, well a number of one off deals are in the pipeline, there's also talk of an all encompassing free trade deal with ASEAN the Association of South East Asian Nations. The ASEAN Secretary General, Ong Keng Yong visited New Zealand this week, he's a former Singaporean diplomat, I spoke to him on Wednesday and asked just how likely is that free trade deal.
ONG KENG YONG Very good, I think that the development in the business sector, the change of attitude of business people thereby affecting the politicians will allow us to bring a trade relationship much more closer and in a more formal way.
MARK The focus for New Zealand and Australia has been looking towards the US in terms of free trade agreements, what's the potential for us in terms of looking towards ASEAN instead?
ONG KENG YONG Well we like to believe to the Australia and New Zealand should look at South East Asia more than the other way, so we hope that through this ASEAN CER FTA we can get Australia and New Zealand to spend more time exploring our marketplace in South East Asia. The South East Asian consumer have become more affluent, have become more sophisticated and we believe that the many products that New Zealand produces will have a great demand in our region, so this idea of ASEAN CER free trade arrangement is something that we believe beneficial to both sides.
MARK Is New Zealand perceived as a South East Asia country?
ONG KENG YONG No, but we have always thought that you are part of the family. In South East Asia we always tease ourself who is coming for dinner, and if relative comes for dinner we don't have to be too formal we don't have to go and you know spring clean the whole house, so if we have South East Asian coming we do not only have to go and prepare the spring cleaning of the house, New Zealand come we don't have to do too much too, because you are you know very much regarded as part of the region, although your European culture, your different history tend to make you more distinctive, but generally speaking we don't have to clean our dining room the way we would do if we are receiving Japanese or Europeans because you are very much accepted as someone who know us who can be part of the family.
MARK So culturally New Zealand and Australia fit better into South East Asia?
ONG KENG YONG Depends on how you look at it, to those people who believe that European culture is to different from the South East Asia culture then they will say it's not possible, but what is European culture today in Australia and New Zealand is very much a mix of your Pacific culture, your South East Asian links your early European origin and in many ways the people in South East Asia have been in Australia and New Zealand many many years, and they have brought back many of the good things about Australia and New Zealand to our own countries, so we think that this idea that there is a distinction because of the socalled Asian culture and European culture may not be entirely valid any more.
MARK So have we been wasting our time pursuing bilateral trade deals when we could have just done one big one with ASEAN?
ONG KENG YONG Well you know when you want to marry a girl you can't just go there and say I love you and I want to marry you, she will say show me your love, and you have to bring her to see the movie, go to a nice restaurant for dinner and so on and so forth, so the bilateral idea is the first step to a higher level of relationship, so we must say that the bilateral FTA have been helpful to ease everybody into a comfort zone and now we talk about the ASEAN FTA with New Zealand and Australia. It is a higher level of formalisation, higher level of partnership but bilaterally many of the FTA that we already concluded, say New Zealand and Singapore and New Zealand and other ASEAN countries will still be useful because it is a what do you call the preparatory process towards a more bigger - towards a bigger partnership.
MARK One of the issues that's confronting all countries and including ASEAN is terrorism, I mean you're based in Jakarta there's been bombings there recently, is there a united voice amongst the ASEAN countries on terrorism?
ONG KENG YONG There is a united voice on two counts, one we don't like these people coming to destroy our world, peace and tranquillity in our society. There is a united voice in saying we have to come together to deal with this, but then how to deal with this? We must not forget that countries like Indonesia they are basically a Muslim society, with a lot of secular Basil mostly and when you have terrorists who proclaim to be Muslim they cannot openly go and take action which a non Muslim government can do, so in the case of the Indonesia position they will have to find an equilibrium how to treat this security trap in a way which will not discomfort their own Muslim population. For a non Muslim country like Thailand or Philippines or Singapore the steps will be different, so although we all feel commonly challenged by the terrorists our response must be because of our different characteristics.
MARK Does that cause tension within?
ONG KENG YONG It does not cause tension if we understand where each of us are coming from, it can cause a bit of stress for many of our people travelling from one country to another because we as common traveller expect a certain level of law and order and due to the distinction of our respective society the government action against terrorism tend to be different and then we as common traveller will say are we safe here, but I think in this global climate that we are in really there's no 100% safe place, more people die from traffic accident than terrorism.
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