Annual Report

---

AUTHORISATIONS

As a general rule people do not need to be authorised or registered to undertake securities market activity in New Zealand. However, the Commission has certain powers to authorise people to undertake specified business.We give high priority to this work.

TRUSTEES AND STATUTORY SUPERVISORS

We approved two applications for authorisation of trustees and statutory supervisors. We are reviewing the policy for approval of trustees and statutory supervisors and released a discussion paper in May.

FUTURES AND OPTIONS CONTRACTS

We authorised two firms to deal in futures contracts. One was a funds manager and the other an NZFOE public broker.

The Commission is empowered to declare a body corporate that proposes to conduct a market or exchange for trading in futures contracts in New Zealand to be an authorised futures exchange. We have received two requests to declare authorised futures exchanges.

ELECTRONIC SECURITIES TRANSFER SYSTEMS

The Commission is empowered to recommend that the Government approve any electronic system for the transfer of securities. We decided to recommend that the FASTER system be extended to apply to the electronic transfer of securities that are traded through the NZSE's facility for unlisted issuers.

EXEMPTIONS

Section 5(5) of the Securities Act empowers us to exempt persons and classes of persons from compliance with various provisions of securities law subject to appropriate terms and conditions. We give high priority to this work.

We use this exemption power to remove rigidities in the law affecting traditional investment products and to facilitate the offer of new investment products, in each case, so that they can be offered to the public in a timely and cost-effective manner. We also use this exemption power to assist certain offshore public issuers to promote investments in New Zealand. This adds to the diversity of investments available in New Zealand and makes the market more competitive.

We aim to avoid conferring a competitive advantage on particular investment institutions and to respect the reasonable needs of both the institution seeking the exemption and investors, present and prospective. We aim to ensure that all exemptions are soundly based on the general policies of securities law. We rely heavily on terms and conditions of exemption to establish alternative compliance procedures which issuers need to observe to be able to rely on the exemption.

We prefer to issue class exemptions rather than individual exemptions. We prefer to consult widely when time allows, particularly where an exemption application involves significant policy questions. We recognise that this may involve an applicant company in the expenditure of time and resources for the public benefit. We are grateful to the companies and industry organisations which have given us their help on individual projects.

Significant exemption work completed this year included:

	a statement of Commission policy on applications for exemption relating to commercially sensitive information in material contracts,
	the financial institutions notice, which is designed to allow financial institutions to use, in their debt security prospectuses, to the greatest extent practical, group financial statements and related information that comply with financial reporting standards rather than the requirements prescribed in the Regulations,
	approval, after public consultation, of a class exemption for scrip offers in takeover bids.

We considered 85 exemption applications and we issued 60 exemption notices during the year. This compares with 80 exemptions considered in 1999/2000 and 70 notices issued that year. There are 161 exemption notices now in force (there were 160 as at 30 June 2000). As at 30 June 2001 there were 23 applications before the Commission.

REFORM

Our key areas for work towards reform of the law were:

	improved quality of offer documents,
	improved quality of investment advice,
	improved market behaviour with particular reference to the secondary market for securities,
	improved funds management practices,
	increased effectiveness of Commission powers.

The Ministry of Economic Development has primary responsibility for business law reform including securities law reform. We confer with the Ministry on all aspects of our law reform work. We also confer regularly with other agencies including the New Zealand Law Society and the Institute of Chartered Accountants of New Zealand, as well as the community generally.

In setting our priorities we concentrated on matters for which we have an explicit statutory responsibility and those which relate to our effectiveness as a Securities Commission.

SECURITIES ACT 1978

We have recommended to the Government a number of amendments to the Securities Act. These amendments aim to improve the workability of the Act and administration of the Commission. We believe they are important.

Some changes have been implemented this year. The Securities Amendment Act 2001 amended the statutory qualifications required of the Chairperson and other Members of the Commission.

The Companies Amendment Act 2001 removes the Commission's role in authorising the Registrar of Companies to prohibit persons from acting as company directors.

The Business Law Reform Bill 2001 seems likely to contain a number of other amendments we have proposed to securities law. We hope the balance will be included in the next Business Law Reform Bill or a Securities Amendment Bill.

We also promoted a temporary amendment to the Securities Act to permit the issuers of superannuation schemes to explain to subscribers the effect of certain changes to the tax laws in a separate written statement rather than by amending their existing offer documents. The Securities Amendment Act 2000 gave effect to this change. It expires on 14 September 2001.

SECURITIES REGULATIONS 1983

The Ministry of Economic Development and the Commission are jointly undertaking a comprehensive review of the Securities Regulations. The first technical stage aims to simplify and modernise the Regulations in the context of existing regulatory policy. In the second stage we are examining the fundamental policies of the Regulations and the way they give effect to the broad policy of the Act.

In the first stage we have taken the opportunity:

	to better harmonise the Securities Regulations with the financial reporting requirements under the Financial Reporting Act,
	to reform outdated advertising rules,
	to promote simplified compliance procedures for issuers of securities,
	to remove impediments to the communication of offer documents by electronic means,
	to address certain provisions in respect of which exemptions are frequently sought,

while retaining a central objective of ensuring that investors have sufficient information about the schemes or companies in which they invest.

A discussion paper on the first stage, reflecting suggestions of interested parties as well as the Ministry and the Commission, was released for public comment in July 2000. Twenty-six submissions were received and considered in formulating draft Securities Amendment Regulations 2001. These will also be released for public comment.