Annual Report

Robust and well functioning capital markets benefit the whole community.They provide investors with the means to accumulate wealth while at the same time supplying capital for entrepreneurs and business. This in turn brings opportunities for employment, increases GDP and widens the tax base. By enforcing securities law and encouraging good market practices, regulators help to strengthen confidence in the securities markets.

The Commission put greater emphasis on enforcement this year and allocated a greater proportion of its resources to this work. These resources were used to investigate insider trading, monitor advertisements promoting securities and to review and where necessary prohibit documents offering securities to the public.

This surveillance and investigative work helps maintain investor confidence in New Zealand's securities markets. Market participants, including brokers, are aware that suspicious trading will be investigated. This should act as a deterrent to breaching securities law.

As well as ongoing work, it has been a year of special projects. Many of these were directed towards reforming the law. For example, the Commission and the Ministry of Economic Development have worked together on revising the Securities Act and Regulations, improving the insider trading regime, implementing the Takeovers Code and identifying the legal implications of demutualisation of the New Zealand Stock Exchange. We also commented on exposure drafts for financial reporting standards and on proposals for retirement villages.

Our report on insider trading law and practice released in November highlighted difficulties in the definition of insider trading and revealed deficiencies in the law relating to market manipulation.

Reviewing the law and recommending changes is one of the Commission's most important functions. Its day to day work in granting exemptions, market surveillance and investigating and commenting on market practices, gives the Commission an unparalleled insight into areas where the efficiency of the New Zealand securities markets can be improved. It is uniquely positioned to promote changes to securities law that will enhance market integrity and strengthen investor confidence.

An important challenge for the future relates to the law about investment advisers. Current disclosure requirements are generally regarded as inadequate. Some who call themselves investment advisers are incompetent or worse. The investment adviser has the key role in the markets of providing the investor, particularly the unsophisticated investor, with advice about the risks and rewards of different investments.To retain and increase investor confidence we need to ensure that our investment advisers are competent. We need to work with the industry to raise standards in areas where improvements are necessary.

We have a full complement of Commission Members for the first time in several years. Colin Beyer, Cathy Quinn and Rodger Spiller joined us this year, maintaining the balance of different disciplines and experience. This ensures vigorous debate and sound decisions.

Tony Frankham retired in April after ten years' service. He served during a time that has been testing for both markets and the Commission. His enthusiasm, experience and wisdom will be missed.

Staff achieved a very high output during the year. As well as the routine work of processing exemptions and authorisations and surveillance of the markets, there have been several major projects often required to be completed under severe time pressures. The Chief Executive and staff have contributed to a successful year and the Commission is grateful to them.

This is my last annual review as Chairperson of the Commission. I have seen many changes during my six years as Chairperson. I believe it is important that the Commission continues to be responsive to the market and to evolve as an increasingly effective market regulator. I am confident that the Commission will continue to play its part in promoting investor confidence in the markets and fostering capital investment in New Zealand.

E.H. ABERNETHY CHAIRPERSON
30 JUNE 2001