The New Zealand stock exchange is proposing to develop a Central Clearing House (CCH) for share ownership changes in a bid to eliminate trading glitches caused by its current system where share registries track movements in stock holdings.
The Exchange was forced to abandon trading in shares in 71 securities on Tuesday after its network was unable to connect with share registry, BK Registries.
Connectivity failures also halted trading last August when problems with a software upgrade at an associated share registry meant that the exchange was unable to confirm that transfers of shares were being recorded. The exchange said at the time that the inability to confirm trades against holdings compromised the integrity of the market.
New Zealand Limited (NZX), which operates the exchange says the proposed CCH system would ensure that markets would not be affected by failures and outages in other parts of the securities landscape.
Chris Corke, NZX CIO, says the current on-register system is structurally flawed as it creates many more points of potential failure and disruption: "The proposed CCH facility will provide greater certainty and security for New Zealand's markets and eliminate the cause of many of the more recent closures. This is obviously critical for us if we want to avoid negative impact on our reputation both here and abroad."
The Exchange says the new CCH would extend its clearing and settlement capacity to include a snapshot of each issuer's security holders (and their holdings) which would be uplifted from the relevant registry immediately prior to the opening of trading.
All trades in each issuer's securities during trading hours will be recorded in the CCH facility and a record of the revised security holding data will be downloaded to the relevant register of that issuer at the close of trading.
Mark Weldon, NZX CEO, says the CCH would also bring New Zealand's capital markets significantly more into line with peer markets, including Australia: "This type of system is internationally accepted, and indeed viewed favourably in terms of investor protection, because there is no inherent need for trading to be linked in real time to each issuer's individual registry."
NZX is releasing a consultation paper on the proposal and is anticipating it will fund the entire development costs. The Exchange says it does not expect the CCH to add additional cost to market participants.