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The laws we work with
- The Securities Act 1978
- The Securities Markets Act 1988
- Securities Regulations 1983
- Securities Act (Contributory Mortgage) Regulations 1988
- Securities (Fees) Regulations 1998
- Securities Markets (Fees) Regulations 2003
- Financial Reporting Act 1993
Securities Act 1978 & Securities Regulations 1983
To carry out these functions, the Commission has powers to receive evidence, require persons to provide information, summon witnesses, obtain information on behalf of similar bodies overseas, and receive undertakings. The Commission can also take civil action in respect of some market activity.
The Securities Act, together with the Securities Regulations, also defines "securities" and sets out the legal requirements for offers of securities to the public.
A SECURITY - the term "security" is defined in the Securities Act as:
"any interest or right to participate in any capital, assets, earnings, royalties, or other property of any person".
The Act applies to the following particular types of securities:
Equity securities (shares)
Debt securities (e.g. bank deposits, debentures, bonds, certificates of deposit, convertible notes)
Interests in a superannuation scheme
Life insurance policies
Interests in a unit trust
Participatory securities (e.g. interests in partnerships and syndicates)
The Act also applies to offers of interests in contributory mortgages, which are discussed separately below.
The Act contains exemptions from certain requirements of the Act in respect of certain classes of securities or persons.
THE PUBLIC - the Act does not expressly define "the public", but does provide guidance as to how the phrase should be interpreted. It is often a difficult question to determine whether a particular offer is an offer to the public for the purposes of the Act, and potentially an offer to a small group of people may be an offer to the public for the Act's purposes. For this reason we recommend that people seek legal advice when considering whether the Act applies.
THE INVESTMENT STATEMENT - all issuers of securities are required to issue an investment statement. The purpose of the investment statement is to provide key information to the prudent but non-expert investor. The investment statement is the primary disclosure document. An issuer may not allot a security to a subscriber if the subscriber has not received an investment statement before subscribing for the security.
The investment statement is an "advertisement" for the purposes of the Securities Act and is subject to the requirements of the Act and the Securities Regulations 1983 relating to advertisements for securities. Schedule 3D to the Regulations prescribes the information which is required to be contained in an investment statement.
THE REGISTERED PROSPECTUS - in addition to the investment statement, there must generally be a registered prospectus for an offer of securities to the public. This prospectus must be registered with the Registrar of Companies and must be provided to prospective investors on request. It contains more detailed information concerning the offer of securities than the investment statement. The matters required to be disclosed in the prospectus are set out in the Act and the Regulations.
Generally, the intention of the law is that the prospectus should contain a true and fair description of all material matters about the offer of securities including the terms of the offer, the financial position and performance of the issuer, and the material interests of those who make or promote the offer. It must be signed by the issuer and any promoter and by their respective directors.
FINANCIAL INFORMATION - the First, Second and Third Schedules to the Regulations prescribe in detail the financial information to be contained in prospectuses for equity securities, debt securities and participatory securities. If that information is already contained in financial statements registered under the Financial Reporting Act 1993 it need not be contained in the prospectus. However, the prospectus must refer to the financial statements and these must always accompany the prospectus. It should be noted that the financial information required under the Securities Regulations for a prospectus differs in some respects from the financial statements required under the Financial Reporting Act for the annual report.
In the case of unit trusts, life insurance and superannuation schemes, there is no detailed prescription for financial information to be contained in the prospectus. However, the prospectus must refer to financial statements that comply with, and have been registered under, the Financial Reporting Act and these must always accompany the prospectus.
TRUST DEEDS & DEEDS OF PARTICIPATION - there must generally be a trustee for an offer of debt securities and a statutory supervisor for an offer of participatory securities. The Regulations contain rules relating to the content of the trust deed and the deed of participation and the Act contains rules on the appointment of the trustee and the statutory supervisor. The trustee and the statutory supervisor must be either a trustee corporation or a person approved for the purpose by the Commission.
ADVERTISING - in general an issuer is free to advertise its offer as it pleases provided that the advertisement does not contain any untrue statement or any information that is likely to deceive, mislead or confuse about any particular that is material to the offer. There are a number of provisions in the Act and Regulations about the content of advertisements. The intention of these is not to reduce the types of information which may be contained in an advertisement but to ensure that the information in the advertisement is presented fairly and truly.
A certificate must generally be completed by the directors of the issuer in respect of each advertisement at the time that the advertisement is distributed. This certificate must state that the directors of the issuer have read, seen or listened to the advertisement, that the advertisement complies with the Act and the Regulations, is not likely to deceive, mislead or confuse with regard to any particular that is material to the offer of securities, and is not inconsistent with the registered prospectus.
COMMISSION'S POWERS OF INTERVENTION - the Commission has power to suspend or prohibit the distribution of an investment statement where the Commission is of the opinion that it is likely to deceive, mislead or confuse with regard to any material particular, or is inconsistent with any registered prospectus referred to in it, or does not comply with the law.
The Commission has power to suspend or cancel the registration of a prospectus which it considers to be false or misleading or not to comply with the law.
The Commission may prohibit the distribution of an advertisement which it considers is likely to deceive, mislead or confuse, is inconsistent with the prospectus or does not comply with the law. The Commission considers that members of the news media should regulate themselves in voluntary association with the Advertising Standards Authority in accordance with the Code of Financial Advertising. Complaints about advertising appearing in news media may be referred to the Advertising Standards Complaints Board.
COMMISSION'S INVESTIGATION POWERS - the Act gives the Commission a number of powers to help it enforce the law.
The power, for the purposes of exercising its responsibilities under securities law, to require any person to produce for inspection any relevant documents or information in their possession, and to inspect and/or copy those documents or that information.
The power to authorise the Registrar of Companies or any other suitable person to undertake an inspection on behalf of the Commission.
The power to summon witnesses to appear before the Commission to give evidence and/or produce documents, and to receive evidence on oath.
The power to receive in evidence statements, documents or information, whether or not those statements, documents or information would be admissible in a court of law.
The power to require witnesses before the Commission to answer questions even when their statements may be incriminating (but with a corresponding privilege against self-incriminating statements being used in criminal or civil penalty proceedings).
The ability to use its powers to obtain information on behalf of an overseas regulator, subject to the Minister's consent.
The power to accept undertakings from persons, and to seek Court orders penalising any person who breached such an undertaking.
The power to hear proceedings in private, and to make confidentiality orders about its proceedings
IRREGULAR ALLOTMENT OF SECURITIES - as a general rule, the allotment of a security offered to the public for subscription is void if at the time of subscription there was not a registered prospectus relating to the offer. The subscriptions must be repaid. Directors of the issuer may be jointly and severally liable for repayment.
An allotment of a security is voidable by a subscriber by giving notice in writing to the issuer if the subscriber has not received an investment statement prior to subscription, if the investment statement or prospectus is false or misleading, or if certain procedural defects have occurred. The subscriptions must be repaid by the issuer upon receiving this notice. Directors of the issuer may be jointly and severally liable for repayment.
OTHER OBLIGATIONS OF ISSUERS - the issuer must generally keep a register of securities and proper accounting records. There are also rules of law about the issue of a certificate evidencing the security and the rights of security holders and other persons to inspect registers of securities.
The issuer must also provide certain information prescribed by the Securities Act and the Securities Regulations 1983 to security holders and prospective investors upon request within 5 working days of receiving the request. This includes the registered prospectus, financial statements registered under the Financial Reporting Act, the issuer's most recent annual report, a copy of any trust deed or participation deed, the most recent investment statement for the securities, any guarantees and the most recent financial statements of the guarantor.
ENFORCEMENT - the Act provides for both civil and criminal liability, in respect of misstatements in advertisements or prospectuses; offering or allotting securities in contravention of the Act; or obstructing the Commission in its work. Criminal prosecutions are carried out by the Registrar of Companies.
The Commission can take civil proceedings in Court to seek compensation for subscribers who are mislead by advertisements or prospectuses, and can also seek pecuniary penalties against issuers, promoters, and directors where offer documents have been misleading. These penalties can range up to $500,000 for any individual, or up to $5 million for a body corporate.
A person convicted of certain serious offences under the Securities Act or ordered to pay a pecuniary penalty is automatically banned from acting as a director or promoter of a New Zealand company for 5 years. The Commission or others can apply to the Court for a ban of up to 10 years for any person who has been convicted of certain offences under the Securities Act or ordered to pay a pecuniary penalty, has persistently acted in contravention of securities law, or has been banned from being a director overseas.
If the Commission is carrying out an investigation under the Act, or has commenced Court proceedings, it can apply for court orders to protect the interests of investors pending the outcome of the investigation or proceeding. This allows the Court to freeze or place in trust property or money, to appoint a manager, trustee, or receiver over the property of any person, or to make a person surrender their passport and not leave New Zealand.
EXEMPTIONS - the Commission has wide powers under the Act to exempt persons from compliance with provisions of the Act and Regulations, subject to such terms and conditions as the Commission thinks fit. The Commission also has power to vary or revoke any such exemption.
See: How to apply for an exemption; Exemption notices; and Exemption summaries
Securities Markets Act 1988
The Securities Markets Act 1988 (formerly the Securities Amendment Act 1988) regulates various activities on securities markets. The Act
- defines insider trading and tipping; imposes criminal and civil liability for insider trading and tipping; and gives the Commission and other people the right to bring actions for insider trading and tipping;
[sections 8 to 10D, Securities Markets Act]
- defines market manipulation; imposes criminal and civil liability for manipulative statements or trading relating to listed securities; and gives the Commission and other people the right to bring court action for market manipulation.
[sections 11 to 11D and Part 5, Securities Markets Act]
- prohibits misleading or deceptive conduct in relation to dealings in securities generally, and gives the Commission power to make orders and seek further Court orders to remedy dealings relating to securities that is likely to mislead or deceive.
[section 13 and Part 5, Securities Markets Act]
- requires investment advisers and brokers to give clients a written disclosure statement, before giving advice or receiving investment money, containing information about:
- relevant experience, qualifications, and professional memberships;
- dispute resolution services and professional indemnity insurance;
- recent convictions, bankruptcy, insolvencies, management and professional bannings;
- types of securities advised on;
- all fees, commissions, and benefits the adviser might receive from giving advice to the client;
- money handling procedures.
- sets out rules for advertisements by advisers and brokers, so that these must refer to disclosure statements and must not be misleading or deceptive.
- prohibits investment advisers from recommending that clients buy securities that have been offered illegally, where the adviser knows or should know that the offer is illegal.
- gives the Commission powers to enforce the investment adviser disclosure laws, including by making orders to ban misleading statements or advertisements or to require correction of these; and sets out criminal and civil liability for making misleading disclosure.
provides a statutory framework for continuous disclosure of information to securities markets by public issuers under the listing rules of registered exchanges, and provides remedies (including Court orders or action by the Commission) where this is not done;
[sections 19A to 19D and Part 5, Securities Markets Act]
provides for disclosure by directors and senior officers of public issuers of any trading by those people in securities of these issuers or related issuers;
[sections 19T to 19ZF, Securities Markets Act]
requires persons with substantial holdings of securities in public issuers to publicly disclose those holdings, and significant changes in those holdings;
[sections 20 to 36, Securities Markets Act]
provides for the registration of securities exchanges; review of the conduct rules of such exchanges; and supervisory responsibilities of the Commission in respect of exchanges;
[sections 36A to 36ZX, Securities Markets Act]
regulates dealings in futures contracts by requiring persons to be authorised by the Commission to deal in futures contracts, and provides for regulation of futures exchanges; and
[sections 37 to 41, Securities Markets Act]
gives the Commission additional powers to enforce the new law and perform its functions under the Securities Act 1978.
[sections 19G, 19ZB, 36ZA, 36ZJ, 36ZO, 44, 48, Securities Markets Act]
[Parts 4 and 5, Securities Markets Act]
Securities Act (Contributory Mortgage) Regulations 1988
Interests in contributory mortgages are offered to the public by contributory mortgage brokers, who must be registered with the Registrar of Companies, and must carry on business through a nominee company and a trust account.
Contributory mortgage brokers are exempted from the requirements to register a prospectus and provide an investment statement, but instead must have either a special authority or general authority from each investor authorising the broker to hold and invest their funds. A special authority is an authority for the broker to invest funds in a particular mortgage, while a general authority is an authority for the broker to invest funds in one or more mortgages as the broker sees fit.
In the case of a special mortgage, the broker must provide to the investor a disclosure document setting out information about the particular mortgage. This document is an advertisement for the purposes of the Securities Act, and so potentially attracts the same civil or criminal liability under the Act. The Commission can seek compensation and pecuniary penalties for breaches of the contributory mortgage regulations in the same way as it can for breaches of the Securities Act. The Commission can seek compensation and pecuniary penalties for breaches of the contributory mortgage regulations in the same way as it can for breaches of the Securities Act.
Securities (Fees) Regulations 1998
- exemptions under section 5(5) of the Securities Act 1978;
- approvals to act as trustees or statutory supervisors under section 48(3) of the Securities Act 1978;
- authorisations of futures exchanges under section 37(8) of the Securities Markets Act 1988:
- authorisations to carry on the business of dealing in futures contracts under section 38(1) of the Securities Markets Act 1988.
The Commission may also recover the costs incurred by the Commission in printing and publishing notices of these matters in the Gazette and the costs of obtaining expert advice or assistance for these matters.
Securities Markets (Fees) Regulations 2003
The Securities Market (Fees) Regulations 2003 prescribe fees payable under the Securities Market Act 1988. Fees are payable to the Commission on application for:
- Exemptions under section 48 of the Securities Markets Act 1988;
- Advice given to the Minister under the Securities Markets Act 1988 on exemptions made and rule approvals relating to activities and exchanges.
The Commission may also recover the cost of obtaining expert advice on these matters and the cost of printing and publishing exemptions in the Gazette.
Financial Reporting Act 1993
The Financial Reporting Act 1993:
- requires issuers to file financial statements that comply with generally accepted accounting practice and give and true and fair view of their affairs;
- prescribes requirements for financial reporting by other entities;
- establishes the Accounting Standards Review Board and defines its functions and powers;
- gives legal force to accounting standards approved by the Accounting Standards Review Board; and
- provides for related matters.
ISSUER - the term "issuer" as defined in the Financial Reporting Act includes:
every person who has, whether before or after the commencement of the Act, allotted securities pursuant to -
- an offer for which, or for which but for an exemption granted by the Securities Commission pursuant to section 5 of the Securities Act 1978, an investment statement or registered prospectus, or both, is or was required under that Act (other than an offer of a unit in a unit trust); or
- an offer required to be contained in a prospectus required to be registered under the Companies Act 1955
- every manager of a unit trust in which securities have been allotted, pursuant to an offer of securities to the public within the meaning of the Securities Act 1978;
- every person who is a party to a listing agreement with a stock exchange registered in New Zealand and who has issued securities which are quoted on such an exchange;
- every insurer to whom Part 10 of the Injury Prevention, Rehabilitation, and Compensation Act 2001 applies;
- every operator within the meaning of the Retirement Villages Act 2003 (other than a receiver or liquidator, or a person who has no financial interest in the village); and
- every registered bank (within the meaning of section 2(1) of the Reserve Bank of New Zealand Act 1989) that has allotted securities to the public within the meaning of the Securities Act 1978.
CONDUIT ISSUERS -the definition of issuers will be extended from 11 August 2007 to include "every recipient of money from a conduit issuer", as that term is further defined by section 4A of the Financial Reporting Act.
FINANCIAL STATEMENTS - the Financial Reporting Act requires directors of an issuer to ensure that financial statements are completed, dated and signed.
The financial statements must comply with generally accepted accounting practice, which in New Zealand is presently New Zealand equivalent IFRS. Where the statements comply with generally accepted accounting practice but do not give a true and fair view of the matters to which they relate, the directors must add such information and explanations as will give a true and fair view of those matters.
Overseas issuers
If an issuer is an overseas company, 'financial statements' also includes financial statements in respect of its New Zealand business prepared as if that business was conducted by a company formed and registered in New Zealand, are required for overseas issuers.
GROUP FINANCIAL STATEMENTS - the Financial Reporting Act requires directors of an issuer to ensure that group financial statements are completed, dated and signed.
The group financial statements must comply with generally accepted accounting practice, which in New Zealand is presently New Zealand equivalent IFRS. Where the statements comply with generally accepted accounting practice but do not give a true and fair view of the matters to which they relate, the directors must add such information and explanations as will give a true and fair view of those matters.
Overseas groups -
Where the group comprises an overseas company and its subsidiaries, 'group financial statements' also includes group financial statements for the group's New Zealand business, prepared as if the members of the group were companies formed and registered in New Zealand.
AUDITING REQUIREMENTS - the Financial Reporting Act requires the directors of an issuer to ensure that the financial statements and any group financial statements are audited. The audit must be undertaken by a qualified auditor.
The financial statements or group financial statements must be accompanied by an auditor's report which addresses the specific points prescribed by the Financial Reporting Act 1993.
REGISTRATION OF FINANCIAL STATEMENTS - the Financial Reporting Act also requires the directors of an issuer to ensure that the financial statements and any group financial statements are delivered to the Registrar for registration within a defined timeframe.
OFFENCE PROVISIONS - the Financial Reporting Act contains a number of 'offence' provisions, which set out the consequences for breaches of the provisions of the Act. In particular we note the following provisions.
Where the financial statements or group financial statements are not prepared, signed and dated in accordance with the timeframes set out in the Act, the directors are liable on summary conviction to a fine not exceeding $100,000.
If the financial statements or group financial statements contain prospective, summary, or interim financial information, they must comply with applicable financial reporting standards. Failure to do so makes directors liable on summary conviction to a fine not exceeding $100,000.
Where the financial statements or group financial statements are not audited in accordance with sections 15, or are not delivered to the Registrar in accordance with section 18, the directors are liable on summary conviction to a fine not exceeding $100,000.
EXEMPTIONS FOR OVERSEAS ISSUERS - the Commission has powers under the Act to grant exemptions from any provision of sections 8 to 11, 13 to 16, 18, 36, 36A or 38, to directors of issuers who are incorporated or constituted outside of New Zealand. The Commission also has the power to revoke or vary such an exemption. However, the Commission must not grant an exemption unless it is satisfied that -
- the exemption would not cause significant detriment to subscribers for the securities of the issuer that are members of the public in New Zealand, having regard to the financial reporting requirements that must be complied with in relation to the issuer under the law in force in the country where the issuer is incorporated or constituted; and
- the extent of the exemption is not broader than what is reasonably necessary to address the matters that gave rise to the exemption.
The Commission must also consult with the Reserve Bank of New Zealand if an exemption concerns a registered bank.
EXEMPTIONS FOR CONDUIT ISSUERS - the Commission also has powers to grant an exemption to a person, or class of persons, from being a recipient of money from a conduit issuer, subject to any terms and conditions that the Commission thinks fit. The Commission also has the power to revoke or vary such an exemption.
See: How to apply for an exemption; and Exemption notices.