NZX appointed to operate Fonterra Shareholders Market

Fonterra is appointing NZX to operate the Fonterra Shareholders Market as part of Trading Among Farmers.

The market is the private market where Fonterra farmer shareholders will trade Fonterra shares among themselves.

In June 2010, the dairy co-operative's shareholders voted overwhelmingly in favour of changes to its constitution to allow steps to be taken to implement TAF.

It involved farmers buying and selling shares from one another through a market, rather than via the co-operative, and is on track for launch in November this year.

The market would operate independently from other securities markets operated by NZX, NZX chief executive Mark Weldon said.

NZX's role with the market will have parallels to its operation of the wholesale electricity market, operated on behalf of the Electricity Authority.

It will provide a suite of trading, clearing, settlement, surveillance, regulatory and other reporting services to Fonterra.

While final commercial terms were still under discussion, NZX confirmed it would operate the market for Fonterra under a flat licence fee structure.

Under the Securities Markets Act 1988, the Fonterra Shareholders' Market must be operated by a registered exchange approved by the Financial Markets Authority. Currently, NZX is New Zealand's only registered exchange operator.

This week, The New Zealand Herald reported Fonterra was recommending a change to its plans for share trading in a bid to allay concerns from its farmers.

Under the proposal, farmers would be able to place shares with the Fonterra Shareholders' Fund and be paid the share value for the rights to dividends and any change in market value, while retaining voting rights.

The fund would raise the money to pay farmers by selling investment units, managed through the stock exchange, giving investors a chance for exposure to NZ's biggest company.

When a farmer wanted to place shares with the fund, he or she would place a sell order on the fund market, and once a trade was matched with a unit investor, the farmer would transfer the share to a custodian, which would hold the legal title.

Farmers could regain the economic interest of shares by buying new shares or units, which could be converted back into shares by applying to take them out of the custodian's "locked box".

Fonterra last week held about 50 meetings around the country, attended by about 3000 farmers, to outline three options for the custodian.

Fonterra chairman Sir Henry van der Heyden said the first option, as per the existing plans, was for Fonterra to own the custodian.

The second option was for a farmer-controlled trust to own the custodian, which Fonterra said was relatively straightforward to implement, and was being recommended by the board and management. The trustees would be farmer representatives.

The third option involves farmers retaining legal title to shares they placed with the fund and in effect becoming the custodian.

 

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