A secret society
Following the dredging boom, exchanges reverted to their traditional stock-in-trade: shares in banks, insurance, loan and agency, shipping, coal, brewing, timber, frozen meat companies, and miscellaneous industrial ventures. There was also some trade in local-body and government debentures.
Learning from some dubious practices that occurred during the rise and fall of mining shares, exchanges imposed stricter rules of behaviour. The exchange became like a secret society, with bans on:
- visitors in call-over rooms
- advertising (a rule that would last for nearly 70 years)
- poaching other brokers’ clients
- communication with the press or brokers from outside the exchange, who were considered, often unfairly, as charlatans demeaning the profession.
From 1905 the only advertising allowed by stockbrokers was a small card, no more than 8.25 centimetres across, which could include only the broker’s name, occupation and address.
Stock Association of New Zealand
In 1915 the four metropolitan exchanges plus the Thames exchange established the Stock Association of New Zealand, an umbrella organisation to promote uniformity in broking transactions and regulate the dealings of the exchanges with the public. Arthur Bate of the Wellington Exchange became the first chair, and a head office was set up in Wellington. Taranaki joined in 1916, Invercargill in 1920 and Gisborne in 1922.
In 1929 the association began the New Zealand Stock Exchange Gazette, a monthly journal to promote investment in securities and to list shares of all public companies both in New Zealand and overseas. It was replaced in 1931 by the Official Record of Stock Exchanges in New Zealand.
In the mid-1920s engineer Edward Isles sparked another gold boom. He proposed to dam the Kawarau River in Central Otago and expose the fissures of gold on the riverbed. Investors flocked to buy shares in companies set up to lease the riverbed. But when the dam was closed in August 1926 the reverse flow from the Shotover, a down-stream tributary, prevented the river dropping more than about one metre. No gold was recovered.
Brokers survived the 1930s economic depression well. There was a frantic resurgence in gold stocks, and investment continued in government and local body loans. In late 1933 shares were keenly sought in a massive government float to establish the new Reserve Bank of New Zealand.
A new development was investment trusts, where small investors pooled their savings and entrepreneurs placed them in a portfolio of shares in different companies. After concerns about the safety of investors’ funds, such trusts disappeared until 1960.
Labour government, 1935–49
The first Labour government brought many capitalist enterprises – such as the Reserve Bank and Mortgage Corporation – under direct government control and bought out any private shareholders. It imposed controls over imports and foreign currency, which resulted in a flight of capital into fixed securities or overseas stocks, especially those in Australia.
During the Second World War share trading was quiet. Only government loans, war bonds and municipal debentures kept the exchanges afloat. The country’s largest ever floats were a £35 million Liberty Loan in 1943, and an even bigger £40 million Victory Loan the next year, both of which were raising money for the war effort.