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

• Release Date: 12/11/15 10:32
• Summary: WAV/RULE: NZC: Application for waivers from Listing Rules: Smartshares Ltd
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					NZC
12/11/2015 10:32
WAV/RULE
NOT PRICE SENSITIVE
REL: 1032 HRS New Zealand Cash Trust (NS)

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

20 October 2015
APPLICATION FOR WAIVERS FROM NZX MAIN BOARD LISTING RULES
SMARTSHARES LIMITED - GLOBAL BOND TRUST, NEW ZEALAND BOND TRUST AND
NEW ZEALAND CASH 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 three new unit trusts, the Global Bond
Trust, the New
Zealand Bond Trust and the New Zealand Cash Trust (the Trusts). Units in the
Trusts are
intended to be Quoted on the NZX Main Board.
5. The Trusts are unit trusts established under a master trust deed and each
with an
establishment deed (the Trust Deeds). The beneficial interest in each 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. The assets of
each Trust are held by
a custodian on behalf of the Trust's trustee.
6. The Trusts each have an investment objective of outperforming a benchmark
index:
(a) the Global Bond Trust will invest in global interest bearing assets,
bonds and other
global securities with the objective of outperforming the Barclays Global
Aggregate
Index by 100 basis points (1%) over a rolling three-year period, hedged in
New
Zealand dollars;
(b) the New Zealand Bond Trust will invest in interest bearing assets and
other New
Zealand bond investments with the objective of outperforming the S&P/NZX
A-Grade
Corporate Bond Index over a rolling three-year period; and
(c) the New Zealand Cash Trust will invest in short term interest bearing
assets and
other cash and cash equivalent investments with the objective of
outperforming the
NZX 90-Day Bank Bill Index over a rolling one-year period.
7. Smartshares has appointed an investment manager for each Trust who has
been delegated
responsibility for each Trust's investment management.
8. Smartshares is currently preparing an application for a market services
licence to be a
manager of registered schemes under the Financial Markets Conduct Act 2013.
In preparation
for that application, Smartshares intends to appoint two directors who are
both independent of
NZX and Smartshares (New Directors).
Application 1 - On-going Waivers and Approval
9. Smartshares has applied, as manager of the Trusts, for waivers from Rules
3.1.1(a), 3.1.1(b),
3.3.5 to 3.3.15, 3.4, 3.5, 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.
10. 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.
11. 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
12. 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
13. 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 Trusts as managed funds or do not provide
the
protections to investors that they are intended to provide;
b. 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;
c. 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
d. that it has previously granted waivers from the Rules in respect of the
other ETFs
managed by Smartshares.
14. 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
Trusts would
benefit from investing in a PIE compliant entity;
b. the PIE thresholds will be clearly disclosed in the offer documents;
c. given the nature of the Trust as a managed fund, the PIE thresholds are
unlikely to
be triggered; and
d. that it has previously granted approval under this Rule in respect of the
other ETFs
managed by Smartshares.

Application 2 - Waivers for Quotation
15. Smartshares has applied, as manager of the Trusts, for waivers from Rules
5.2.1 and 5.2.3 in
respect of the Quotation of the units in the Trusts.
16. 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.
17. 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.
18. 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
Trusts. 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 Trusts 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 Trusts will be sought in the same way as
additional
investment is sought in relation to the other funds managed by Smartshares.
The
Scheme will invest approximately $120 million in the Global Bond Trust, $210
million
in the New Zealand Bond Trust and $130 million in the New Zealand Cash Trust,

which is of a sufficient scale for the Trusts to be launched without further
pre-listing
distribution. The distribution capability of an Organising Participant is
therefore not
necessary or beneficial in launching the Trusts; 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.
19. 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.
20. Smartshares has advised the Special Division that the Trusts will not
meet the spread
requirements because the seed funding for the Trusts 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 each
Trusts liquidity
as the Scheme will be required to trade to respond to members changing
between asset pools.
21. 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 Trusts, 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
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
22. 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
Trusts waivers
from Rules 5.2.1 and 5.2.3.
Application 2 - Reasons
23. 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
Trusts;
b. given the Scheme will provide significant seed capital in consideration
for units in
each of the Trusts, the distribution capability of an Organising Participant
is not
necessary or beneficial in launching the Trusts;
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
Trusts is likely to develop.
Application 3 - Transition waivers
24. Smartshares has applied, as manager of the Trusts, for waivers from Rules
3.3.1(c) to 3.3.4,
3.6.2(a) and 3.6.2(c).
25. Smartshares submitted that while it intends to appoint the New Directors
before the units in
the Trusts are Quoted, at the time the offer documents for the Trusts will be
registered, this
appointment process will not have been completed.
Application 3 - Decision
26. 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
Trusts, waivers
from Rules 3.3.1(c) to 3.3.4, 3.6.2(a) and 3.6.2(c) until the units of the
Trusts are Quoted.
Application 3 - Reasons
27. The Special Division is satisfied that provided the New Directors are
appointed prior to
Quotation of the units then the spirit and intent of the Rules regarding
Independent Directors
is maintained.
Publication
28. This decision is confidential until such time as the prospectus for the
offer of units in the
Trusts 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), 3.3.5 to 3.3.15, 3.4 and 3.5
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 each Trust's business and operations do not materially
change.
2. The waivers granted in this decision and these conditions are noted in
each Trust's half-year
and annual reports.
Issue of baskets of Units
3. The waiver from Rule 7.3 only applies to the issue of baskets of units in
each Trust
undertaken in accordance with the provisions of the Trusts and terms of the
Trust Deeds.
Material Transactions with Related Party
4. The waiver from Rule 9.2.1 only applies to:
a. the withdrawal of baskets undertaken in accordance with the provisions of
each
Trust and terms of the Trust Deeds; and
b. the payment of Smartshares' management fee in accordance with the
provisions of
each Trust and terms of the Trust Deeds.
Information provided to unitholders
5. Smartshares must provide unitholders with, as a minimum weekly, the
current net asset
value of each Trust.
6. Smartshares must provide unitholders with, as a minimum quarterly, the
extent to which
each Trust has outperformed the relevant benchmark index (and if not, by how
much).
7. The waiver from Rule 10.4.2 only applies with respect to the requirement
to include the
information prescribed in Appendix 1 in each Trust's half-year report.
8. Smartshares must include the following information in each Trust's
half-year report:
a. the extent to which each Trust has outperformed the relevant benchmark
index (and
if not, by how much);
b. the current net asset value of the Trust;
c. a statement of financial performance;
d. a statement of cash flows;
e. statements of movement in unitholder funds;
f. a statement of financial position;
g. a statement of accounting policies adopted in the reporting period; and
h. any major changes in value of assets, as per Listing Rule 10.4.1(d).
End CA:00273274 For:NZC    Type:WAV/RULE   Time:2015-11-12 10:32:34