The National Stock Exchange of Australia (NSX) is Australia's second largest trading platform. On 18 November 2009 it announced that it is proposing to offer a method of listing for property funds that would enable investors in unlisted property funds to trade their units in schemes that have been frozen.
It released key points of a proposed practice note for the proposed scheme which include:
- property funds, including frozen funds, will be able to list on the NSX;
- liquidity will be limited to two six-week trading windows each year, following the release of yearly and half yearly accounts;
- participating funds will be required to ensure disclosure is made to investors to inform them that trading will only occur in the two trading windows. NSX is to provide further guidance in relation to disclosure;
- funds will be subject to continuous disclosure and other applicable requirements of the NSX at the time; and
- the usual requirements for admission to the NSX will apply, although the fund size and unitholder number thresholds will be lower than those of the Australian Securities Exchange.
The NSX has indicated that "Practice Note for Property Issuers - Trading Windows" will be issued "shortly" and that the changes are subject to regulatory approval.
Illiquidity in property funds has been a long standing problem and the NSX initiative would appear to provide some relief, albeit limited, to those investors stuck in frozen funds.
The NSX has stated that "no one will be forced to sell at a price below what they believe is "fair value" and that "investors can set their own price and just wait until they find a buyer", although the exact pricing mechanism remains unclear. The NSX and the relevant fund managers should ensure that there are appropriate safeguards in place to avoid a situation where cash strapped investors desperate to access funds end up selling their units for much less than what they are worth.
The proposal is also supported by the Australian Direct Property Investment Association (ADPIA).