Press Release

Who remembers the second boards that the separate city stock exchanges tried to set up in the 1980s? For that matter who remembers the Enterprise Market, associated with the Australian Stock Exchange, which ceased operations early this year? Then there was the brief existence of the Australian Derivatives Exchange which closed its doors in late March, after remaining open for just 11 weeks. Despite the long history of failed attempts to create alternative capital markets - preferably one that effectively matches SMEs to investors - the obvious need for such a service has resulted in two more "exchanges" recently opening their doors to offer stock exchange-like services at SME-sized prices. The senior executives at both the Bendigo Stock Exchange, which recently gained its first and only listing so far, and the Newcastle Stock Exchange agree that alternative exchanges do not have a good track record in Australia. However, both executives can point to reasons that their exchanges will remain open and provide real services to those companies requiring investor attention and a market for their shares, but are still far too small to go on the ASX. Warwick Evans, chief executive of the Newcastle Stock Exchange (which he prefers to be called NSX) says that the exchange's costs are quite low. It uses the ASX's trading service, known as SEATS, and offers full trading clearance through the standard CHESS system but does so through licensing arrangements. The exchange itself, which is modelled on the AIM and TechMark submarkets of the London Stock Exchange and is located in offices on Hunter Street in Newcastle, north of Sydney, employs just four people. That means it can offer listing and trading services for considerably less than the ASX. Evans says that the ASX's now defunct Enterprise Market had charged fees to match the costs of the ASX, but a company with assets of about $10 million could be listed on the NSX for less than $25,000. To date two companies have listed on the NSX - Pegmont Mines and Winpar Holdings - with three more companies plus a means of trading cases of wine, called the Australian Wine Exchange, due to be listed. Evans says he expects 40 to 50 listings by the end of next year. Trading in even 50 small stocks will not amount to much volume. Before it closed, the Enterprise Market was reported as having registered 143 companies which might have been charged up to $5,000 for six months on the service, depending on how much capital they were trying to attract. But Evans says that the NSX's costs will remain low and that it is an important service to SMEs. He says unless a listed company is very large, it will become "lost" on the main exchange, attracting little attention from investors. Both the NSX and the Bendigo Stock Exchange (like the NSX, the BSE is a revival of a long dormant regional exchange) will be competing for listings from SMEs, but the exchange in Bendigo, north of Melbourne, sees itself being heavily engaged with regional enterprises, including the likes of agricultural co-operatives. The BSE's first listing is the Victorian Livestock Exchange, a livestock market in the Victorian town of Packenham. BSE executive director, business development, Frank Dunphy, says that the exchange's major partners are Computershare, which is providing the trading system, and Bendigo Bank, which sees its role as one of developing country areas. The exchange has been set up as part of the bank's aim to foster investment in regional companies. As well as encouraging rural investment by providing, among other services, a means for seed investors to realise the value on their investment, the market would be a forum for trading of shares in agricultural co-operatives. Those co-operatives usually have a semi-formal mechanism for trading their shares - the secretary may keep a book of buy and sell offers - but that trading could be done more conveniently on the Bendigo exchange, Dunphy says. But the exchange will also be competing with the NSE for listings from small- to medium-sized companies on the east coast, and is already in discussion with a number of SMEs. Dunphy agrees that being a small exchange is not easy - a long way from being a lay-down misere - but there are a lot of small companies looking for the benefits of listing without the trouble of going on to the main exchange. Australia is by no means the only country with a poor track record in setting up exchanges for smaller companies. The Growth Enterprise Market, for example, was set up by the Hong Kong exchange for small- and medium-sized companies without a sufficient profit track record for the main board. Just under $500 million was raised on the GEM board before it was hit hard by both the internet shake-out and the belated realisation by investors that there was very little substance to many of the listed companies. Setting up trading exchanges for SMEs has never been easy in any market