Industry background

What exchanges do

Exchanges provide a marketplace where companies and other enterprises wishing to raise funds for growth are matched with investors seeking to invest funds (known as the primary market).

Exchanges also provide a market which establishes security values through matching buyers and sellers (known as the secondary market). In a efficient and liquid secondary market, the forces of supply and demand set accurate market prices for securities.

By listing on an exchange, companies gain a heightened profile and access to capital, while investors have access to a range of securities in which to invest their savings.

The development of capital markets is enhanced by exchanges, reflecting the supply and demand for securities of the listed companies. An exchange should strive to build liquidity and investor confidence, and attempt to increase the number of listed companies.

In facilitating capital raising and securities trading, exchanges also:

• provide economic stimuli and improved risk management instruments
• support pension and retirement savings schemes
• intermediate public savings and the funding of corporate investment
• promote cross-border investment.

The evolution of exchanges

In the early 1990s most exchanges worldwide were mutual societies. With a demand for greater accountability, independence, transparency and a need for capital to support increased technology advances, exchanges began to consider demutualisation to break the link between ownership and user.

In 1993 the Stockholm Stock Exchange became the first exchange in the world to demutualise. Today, most major exchanges have demutualised and listed securities on their own exchanges.

Evidence from other exchanges shows that in following the transition to a listed entity they have redefined their strategies and operations to improve service and performance to their customers and, with access to new sources of capital, are diversifying into new markets, products and countries.

NZX's demutualisation and listing reflects these substantial changes that have occurred over the past decade in the structure of global exchanges.