Ann: WAV/RULE: NPF: Application for waivers from Listing Rules:...

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• Summary: WAV/RULE: NPF: Application for waivers from Listing Rules: Smartshares Ltd
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12/11/2015 10:33
WAV/RULE
NOT PRICE SENSITIVE
REL: 1033 HRS New Zealand Property Trust (NS)

WAV/RULE: NPF: Application for waivers from Listing Rules: Smartshares Ltd

20 October 2015
APPLICATION FOR WAIVERS FROM NZX MAIN BOARD LISTING RULES
SMARTSHARES LIMITED - NEW ZEALAND PROPERTY TRUST
1. This is a decision of the Special Division of the NZ Markets Disciplinary
Tribunal (Special
Division).
2. Capitalised terms that are not defined in this decision have the meanings
given to them in the
NZX Main Board Listing Rules (the Rules).
Background
3. Smartshares Limited (Smartshares) is the manager of several exchange
traded funds (ETFs)
with securities Quoted on the NZX Main Board. Smartshares is a wholly owned
subsidiary of
NZX Limited (NZX) and accordingly, its listing is regulated by the Special
Division.
4. Smartshares intends to establish a new index tracking unit trust, the New
Zealand Property
Trust (the Trust). Units in the Trust are intended to be Quoted on the NZX
Main Board.
5. The Trust is a unit trust established under an establishment deed and a
master trust deed (the
Trust Deeds). The beneficial interest in the Trust is divided into units with
each unit
representing an equal interest in the assets of the Trust, but not conferring
any interest in any
specific asset of the Trust.
6. The Trust is a passive investment fund. Its objective is to track the
S&P/NZX Real Estate
Select Index (the Index) by buying and selling the securities of the Issuers
that are part of the
Index in proportions that match their weightings in the Index. These
securities (which
constitute the Trusts' assets) are then held by a custodian on behalf of the
Trust's trustee.
Application 1 - On-going Waivers and Approval
7. Smartshares has applied, as manager of the Trust, for waivers from Rules
3.1.1(a), 3.1.1(b),
3.3.1(c) to 3.3.4, 3.3.5 to 3.3.15, 3.4, 3.5, 3.6.2(a) and 3.6.2(c), Section
4, 7.1.11, 7.3, 7.4,
7.5, 7.6.1 to 7.6.3, 7.11.1, 9.2.1, 10.3.2, 10.4.1(d), 10.4.2 and 10.6.1(a)
and for approval
under Rule 11.1.5.
8. Smartshares submitted that because the Rules treat units in a unit trust
as Equity Securities,
a number of the Rules to which a waiver is sought are either inapplicable or
unnecessary.
9. Smartshares also noted that the Special Division has previously granted
waivers from these
Rules and approval under Rule 11.1.5 in respect of the existing funds managed
by
Smartshares, most recently on 17 July 2015.
Application 1 - Decision
10. On the basis that the information provided to the Special Division is
full and accurate in all
material respects, the Special Division grants Smartshares as manager of the
Trust:
a. waivers from the Rules noted in Appendix 1 subject to the conditions set
out in
Appendix 2; and
b. approval under Rule 11.1.5 for the inclusion in the Trust Deed of
provisions that
restrict the issue, acquisition or transfer of units to allow the Trust to
comply with
the Portfolio Investment Entity (PIE) regime.
Application 1 - Reasons
11. In coming to the decision to grant Smartshares waivers from the Rules
noted in Appendix 1,
the Special Division considered:
a. that the Rules were drafted with company structures in mind and some of
the Rules
are either not applicable to the Trust or do not provide the protections to
investors
that they are intended to provide;
b. the nature of the Trust as a passively managed index tracking unit trust.
The
Special Division noted that the Directors of Smartshares do not exercise
influence
over the Trust in the same way or to the same extent as do Directors of an
Issuer
who is a company. Smartshares must operate the Trust in accordance with its
investment objective - to buy and sell securities in order to track the
Index;
c. the provisions of the Trust Deed and the responsibilities of the trustee,
as disclosed
in the offer documents, which protect the interests of the Trust's
unitholders;
d. that the conditions set out in Appendix 2 would ensure that where the
provisions of a
Rule are not applicable to the Trust, the Rule's intent may still be
achieved; and
e. that it has previously granted waivers from the same Rules in respect of
the other
passive ETFs managed by Smartshares.
12. In coming to the decision to grant Smartshares approval under Rule
11.1.5, the Special
Division considered:
a. the submission from Smartshares that the majority of investors in the
Trust would
benefit from investing in a PIE compliant entity;
b. the PIE thresholds will be clearly disclosed in the offer documents;
c. given the passive nature of the Trust, the PIE thresholds are unlikely to
be
triggered; and
d. that it has previously granted approval under this Rule in respect of the
other
passive ETFs managed by Smartshares.

Application 2 - Waivers for Quotation
13. Smartshares has applied, as manager of the Trust, for waivers from Rules
5.2.1 and 5.2.3 in
respect of the Quotation of the units in the Trust.
14. Rule 5.2.1 requires an Issuer applying for Quotation of a new class of
security to apply
through an Organising Participant, except where the application relates to
rights in respect of
securities that are already Quoted.
15. Smartshares has submitted that the requirement for an Organising
Participant is aimed at:
a. ensuring a new Issuer has received appropriate advice and guidance from a
regulated capital markets practitioner before offering securities for the
first time to
the public; and
b. encouraging adequate liquidity post listing via distribution to the
institutional and
retail network of the Organising Participant.
16. In support of its application for a waiver from Rule 5.2.1, Smartshares
submitted that:
a. the advice of an Organising Participant is not needed to develop and
launch the
Trust. Smartshares is already the manager of several Quoted ETFs and has
operated such funds in New Zealand since 1996. Expert capital markets advice
regarding a new listing does not therefore deliver any benefits to
Smartshares that
could typically be expected of an Issuer coming to market for the first time;

b. it does not need an Organising Participant to assist with the distribution
of the units
in the Trust in the traditional sense. The initial investment in the Trust
will be made
under an arrangement with SuperLife Superannuation Scheme (the Scheme), whose

manager SuperLife Limited is owned by NZX, and after the initial Quotation,
additional investment in the Trust will be sought in the same way as
additional
investment is sought in relation to the other funds managed by Smartshares.
The
Scheme will provide approximately $38 million in seed capital as
consideration for
units, which is of a sufficient scale for the Trust to be launched without
further prelisting
distribution. The distribution capability of an Organising Participant is
therefore not necessary or beneficial in launching the Trust; and
c. to require Smartshares to appoint an Organising Participant would add
little value to
the process, but would require Smartshares to incur additional cost.
17. Rule 5.2.3 states that a class of securities will generally not be
considered for Quotation
unless the spread requirements are met, or NZX is otherwise satisfied that
the Issuer will
maintain a spread of security holders which is sufficient to ensure that
there is a sufficiently
liquid market in the class of securities.
18. Smartshares has advised the Special Division that the Trust will not meet
the spread
requirements because the seed funding for the Trust will come from the
Scheme. The
Scheme has approximately 45,000 members (although these numbers fluctuate
with normal
member movements and Scheme members can choose among a number of asset pools
for
their investment and may alter the allocation at their discretion). This
results in frequent
movements between asset classes (for example, shifting money out of NZ shares
and into
fixed interest or vice versa), which will have a corresponding impact on
Trust liquidity as the
Scheme will be required to trade to respond to members changing between asset
pools.
19. In support of its application for a waiver from Rule 5.2.3, Smartshares
submitted that:
a. given its experience in relation to the other funds it manages,
Smartshares expects
that the number of new investors in the Trust, and liquidity, will increase
over time.
There are over 9,500 investors in Smartshares' EFTs, 25% of which hold units
in
more than one fund, so there is an expectation that listing a new fund will
see
growth from existing Smartshares' investors wanting access to other Listed
funds;
b. unlike other listed equity instruments, liquidity in ETFs is not
influenced only by
demand for the ETFs themselves, but also liquidity in the underlying assets
(securities of the Issuers in the index) held by the ETF. This underlying
liquidity is
augmented by the presence of an informal market maker, whose role is designed
to
give investors confidence when buying or selling units in the ETFs; and
c. Smartshares has increased the marketing spend for its ETFs and expects
this to
further develop liquidity.
Application 2 - Decision
20. On the basis that the information provided to the Special Division is
full and accurate in all
material respects, the Special Division grants Smartshares as manager of the
Trust waivers
from Rules 5.2.1 and 5.2.3.
Application 2 - Reasons
21. In coming to the decision to grant Smartshares waivers from Rules 5.2.1
and 5.2.3, the
Special Division considered that:
a. Smartshares has the requisite expertise in relation to ETFs such that it
does not
need the guidance of an Organising Participant to assist with Listing the
Trust;
b. given the Scheme will provide seed capital of approximately $38 million in

consideration for units in the Trust, the distribution capability of an
Organising
Participant is not necessary or beneficial in launching the Trust;
c. it has previously granted a waiver from these Rules for the other ETFs
managed by
Smartshares (most recently on 17 July 2015) and that NZX Regulation has
previously granted waivers from Rule 5.2.1; and
d. given the measures Smartshares has outlined above the liquidity in the
units of the
Trust is likely to develop.
Publication
22. This decision is confidential until such time as the prospectus for the
offer of units in the Trust
is registered. Following registration this decision will be published in
accordance with Rule
1.11.2.
DATED 20 OCTOBER 2015
Andrew Beck, Chairman, Special Division
APPENDIX 1
Rules 3.1.1(a), 3.1.1(b), 3.3.1(c) to 3.3.4, 3.3.5 to 3.3.15, 3.4, 3.5,
3.6.2(a) and 3.6.2(c)
Section 4: Takeovers
Rules 7.1.11, 7.3, 7.4, 7.5 and 7.6.1 to 7.6.3 and 7.11.1
Rule 9.2.1
Rules 10.3.2, 10.4.1(d), 10.4.2 and 10.6.1(a)
APPENDIX 2
The conditions of the waivers granted from the Rules noted in Appendix 1 of
this decision are:
1. The nature of the Trust's business and operations do not materially
change.
2. The waivers granted in this decision and these conditions are noted in the
Trust's half year
and annual reports.
Audit Committee
3. The Trust must have an Audit Committee.
4. The Audit Committee must be comprised solely of Directors of Smartshares
and Independent
Directors of NZX.
5. The Audit Committee must be comprised of a majority of Directors who are
either
Independent Directors of Smartshares or Independent Directors of NZX.
6. Any Independent Director of NZX that sits on an Audit Committee must
provide the Special
Division with written certification that they accept the obligations and
responsibilities of
being a member of that Audit Committee imposed by the Rules in relation to
the Trust.
7. At least one Smartshares Director must sit on the Audit Committee.
8. The Director(s) of Smartshares who sits on the Audit Committee must report
the findings of
that Committee back to the Smartshares Board.
9. The Directors of Smartshares must respond to any recommendations made to
the
Smartshares Board by the Audit Committee.
10. The Audit Committee has full powers to require Smartshares to provide any
information
relating to the Trust needed to enable it to meet the obligations of an Audit
Committee.
Issue of baskets of Units
11. The waiver from Rule 7.3 only applies to the issue of baskets of units in
the Trust
undertaken in accordance with the provisions of the Trust and terms of the
Trust Deed.
Material Transactions with Related Party
12. The waiver from Rule 9.2.1 only applies to:
a. the withdrawal of baskets undertaken in accordance with the provisions of
the Trust
and terms of the Trust Deed; and
b. the payment of Smartshares' management fee in accordance with the
provisions of
the Trust and terms of the Trust Deed.
Information provided to unitholders
13. Smartshares must provide unitholders with, as a minimum weekly, the
following
information:
a. the extent to which the Trust has tracked the Index in its portfolio
composition (and
if not, by how much);
b. the amount of income of the Trust, which would otherwise be distributed,
that has
been capitalised to correct tracking discrepancies; and
c. the current net asset value of the Trust.
14. The waiver from Rule 10.4.2 only applies with respect to the requirement
to include the
information prescribed in Appendix 1 in the Trust's half-year report.
15. Smartshares must include the following information in the Trust's
half-year report:
a. the extent to which the Trust has tracked the Index in its portfolio
composition (and
if not, by how much);
b. the level of income, which would otherwise be distributed, which has been
capitalised to correct tracking discrepancies;
c. the current net asset value of the Trust;
d. a statement of financial performance;
e. a statement of cash flows;
f. statements of movement in unitholder funds;
g. a statement of financial position;
h. a statement of accounting policies adopted in the reporting period; and
i. any major changes in value of assets, as per Rule 10.4.1(d).
End CA:00273275 For:NPF    Type:WAV/RULE   Time:2015-11-12 10:33:49