Annual Report

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SECURITIES AMENDMENT ACT 1988

The Securities Amendment Act 2001 has made the Chinese Wall provisions in Part I of the Securities Amendment Act 1988 more effective.

The Government published a discussion paper on insider trading law in September 2000. The Commission worked with the Government to consider and comment on submissions made by the public on this paper. After that review the Government announced it would secure changes to the prevention, detection and enforcement provisions of insider trading law. The changes were:

	a continuous disclosure regime for public issuers designed to provide better information to the investing public and to reduce the opportunity for insider trading by increasing the flow of information to the markets,
	a duty on the directors of a public issuer to publicly disclose their trading in the issuer's securities at the time the transactions are effected,
	an obligation on the NZSE to provide information to the Commission about breaches or suspected breaches of securities law, and to assist the Commission in its inquiries,
	a power for the Commission to take Court action to enforce insider trading law.

We welcome these changes. We expect that they will contribute to increased confidence in our markets.The Commission already has a close working relationship with the NZSE which we hope will be strengthened by this statutory recognition.

Any changes to the enforcement regime need to be accompanied by a careful review of the circumstances in which liability arises. Our experience with insider trading cases has shown that there are difficulties with the present provisions of the law about liability.

The Government also announced a more general review of insider trading law. This will consider:

	basic questions of liability for insider trading,
	whether insider trading should be a criminal offence,
	the implementation of laws to combat market manipulation.

This review has commenced. We expect that a discussion paper will be released before the end of 2001.

In work on the law about market conduct we have taken account of the aspirations of New Zealand and Australia to achieve greater harmonisation of business laws. We have done preliminary work on the Australian laws on the disclosure of substantial shareholdings in listed companies. These rules of law are similar to our substantial security holder disclosure rules in Part II of the Securities Amendment Act 1988. We think there may be particular benefits, given the wide cross-holdings in listed companies on each side of the Tasman, in promoting reform that could closely align Part II of the Amendment Act with the equivalent provisions of the Australian Corporations Law. Care needs to be given to the detail of such a proposal before any recommendation is made, to ensure that the law fits well with existing domestic rules. We plan to continue this work in the new year.

BINDING RULINGS

We published a discussion paper on a possible scheme under which the Commission might have power to make rulings on the application of securities law. While a number of people favoured some form of rulings power for the Commission, strong arguments of principle were raised against it and the Commission decided not to develop a formal proposal for a rulings power. It is considering instead the extent of its power to grant exemptions in case of doubt to enable securities law to apply in a certain and sensible way.

RETIREMENT VILLAGES

We received 20 submissions on our discussion paper on the way in which securities law applies to schemes involving interests in land, in particular retirement villages. We used this information in our communications with the Ministry of Economic Development, the Ministry of Justice and the Ministry of Social Policy in their work on possible new rules of law to regulate resident funded retirement village schemes, based on the proposals of the Law Commission. We concentrated on the wider question of how the law applies to schemes more generally involving interests in land.

FINANCIAL REPORTING

We confer regularly with the Financial Reporting Standards Board of the Institute of Chartered Accountants of New Zealand about financial reporting matters.

During the year we made comments to the Institute of Chartered Accountants of New Zealand on two exposure drafts and on two other papers developed internationally on financial instruments and leases.We are pleased to report that one of the exposure drafts was on summary financial statements. We look forward to it being adopted as a financial reporting standard in the near future.

FUNCTIONS OF THE SECURITIES COMMISSION AND THE TAKEOVERS PANEL

The Ministry of Economic Development has issued a discussion paper on the functions of the Commission and the Takeovers Panel. It seeks views on how these functions can be improved and used to enforce the law more effectively. We were consulted at all stages of the development of this paper. We consider that the matters raised are of great public interest and we hope that there will be a good response to the invitation to comment. A key objective of the review is to promote confidence in the New Zealand share market.

OTHER COMMENTS AND RECOMMENDATIONS

We commented on matters of interest to the Commission at the invitation of the Ministry of Economic Development, the Law Commission, the Institute of Chartered Accountants of New Zealand and the Investment Savings and Insurance Association. We assisted the Law Commission with its review of insolvency law in relation to the Corporations (Investigation and Management) Act 1989.

We continued to review practices relating to electronic offerings and trading of securities. We looked in particular at the challenges presented to regulators by the growth of advertising for securities on the internet. Our objectives are:

	to understand the potential uses of this technology for securities markets,
	to ensure that the law does not impose inappropriate impediments to the use of the technology,
	to understand the opportunities for abuse of the technology by dishonest people and to endeavour to combat these.

We had discussions with members of the managed funds industry. We have a standing offer to set up a forum for consultation if difficult issues arise about the content of the law or its application to market practice.