Stock exchange procedure in New Zealand differs in some important respects from the procedure of the large exchanges overseas. Members meet, usually twice a day, in a “call” room, the meeting being known as the “call”. The name aptly describes the method of operation. An official of the exchange calls over the names of securities as an invitation to members to make either buying or selling bids. Competition in the bidding is frequently spirited and, when the buying and selling bids coincide, a sale is effected and the current market price established. Bids, or more correctly, buying and selling quotations, are published daily as are sales made or, in the case of some but not necessarily all sales made outside the “call”, sales reported.

For the purposes of the “call”, stocks, shares, and debentures are grouped according to the business of the respective companies – for example, loan and agency, shipping, timber, wool and textile. For the purpose of quotation the Stock Exchange Association divides securities into three classes – official, unofficial, and vestibule. The majority of quotations are for shares on the official list. In the case of shares officially listed, this means that the companies concerned, about 250 at present, have requested official listing and have met the Stock Exchange Association's conditions. To obtain listing a company must: (a) Be of sufficient magnitude, and its share-holding must be sufficiently well distributed to ensure that there is a free market for its shares; (b) Undertake to supply promptly to the association, as well as to its shareholders, all information relative to declaration of dividends, proposed alteration to its capital structure, changes in the directorate, and matters of a similar nature for publication in the daily press; and (c) Adopt articles of association (under the Companies Act) which comply with the exchange's requirements. In brief, these requirements are designed to ensure that reasonable information about the company is available to shareholders; to enable a majority of shareholders (in terms of value of issued capital) to control the company; and to protect the interests of minorities.

Official listing is, therefore, an indication that a company's capital structure and its articles of association comply with the stock exchange's requirements and that information which may affect the market price of its securities will be immediately made known to investors throughout the Dominion. It does not, however, indicate that the Stock Exchange Association of New Zealand necessarily believes that a company will achieve its promoters' claims.

Shares of a public company, which either has not applied for official listing or has applied but has not had it granted, are quoted on the unofficial list, provided there is evidence of a free market for the shares. Buying and selling quotations and sales are published in the same way as for officially listed shares. A company may be refused official listing for one of several reasons. For example, the number of shareholders may be too few to ensure a free market; control of voting strength may rest with one individual; or the company's articles of association may not comply with the stock exchange's requirements. The fact, however, that a company's securities are quoted on the unofficial list does not imply that they are less sound than those officially listed. Dealings in securities on the unofficial list carry a higher rate of brokerage.

Securities classed as vestibule are those which, for some reason, cannot be quoted on the official or unofficial lists. The reason may be that the number of shareholders in a company is too few to ensure a free market. In theory, deals in such securities cannot be made in the “call” room but only in the vestibule, hence the name. In practice, however, deals are made in the “call” room after the official “call” has concluded. The stock exchange does not record quotations or sales of vestibule securities.

In buying and selling securities as agents for their clients sharebrokers earn their income from brokerage charges, which are controlled by the association and are uniform for all five exchanges. Income is also earned from underwriting and valuation fees and from commissions on new issues and on placements of new issues.

Another feature of the New Zealand stock exchanges is the system of trading in “odd lots”, that is, in parcels of shares which do not fit into what has been defined as “marketable” or “round” parcels for trading at the “call”. For shares that do not exceed £2 in price, a “marketable” parcel is 100 shares, for example. “Odd lots” (for instance 67 shares at a price of 15s. 6d. each, would be an “odd lot”) are usually dealt with after the main call over, the prices being generally less than for “marketable” parcels. On some overseas exchanges one broker is appointed to specialise in “odd lot” dealing and, in order to provide the volume of turnover necessary to make such business worth while, all “odd lots” are channelled through him. There is at present no “odd lots” specialist dealer in New Zealand.

In recent years, partly as a result of publicity by the exchanges themselves, there has been a marked increase in public interest and participation in the share market. Other contributing factors have been higher levels of income, a greater appreciation of the possibility of “hedging” against inflation by investment in equity shares of growing companies, and the trend towards shares of smaller denominations, 5s. or 10s. instead of £1 or higher. A small investor can buy a marketable parcel of low-priced shares for a comparatively modest outlay. For example, £50 would buy 100 5s. shares with a market value of 10s. each. The formation of unit trusts and of investment clubs and the introduction of monthly investment plans is evidence of the growing interest which seems likely to continue.

In New Zealand the market which the stock exchange provides is essentially an investment market, not a speculative one. As the accompanying graphs illustrate, share prices do fluctuate but large movements, reflecting substantial selling or buying operations aimed at securing quick profits, are difficult to discern. In this country the stock exchange may lack something of the mystique, occasional drama, and colourful jargon of some overseas exchanges, but the seeming absence of prominent “stags”, “bears”, and “bulls”, of clamorous dealings and of publications by successful speculators, is not necessarily something to be deplored.

by Robert John Familton, M.COM., Economist, Reserve Bank, Wellington.

• Official Record of the Stock Exchanges of New Zealand (published monthly)
• New Zealand Investment Guide, Marris, E. C. (1959)
• Equity Investment, Franklin, E. C. (1961).