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2002 Annual Report

ACHIEVEMENTS (Cont...)

EXEMPTIONS

Responsibilities

consider applications for exemption from securities law
review existing exemptions

Achievements this year

considered 92 new applications for exemption from securities law
granted 78 exemptions
amended Australian exemptions to reflect changes in Australian law
began a review of exemptions which expire in September 2002

12.7% of expenditure

Section 5(5) of the Securities Act empowers us to exempt persons from compliance with various provisions of securities law, subject to conditions. We use this power to remove rigidities in the law for traditional investment products and to facilitate offers of new products so that they can be offered to the public cost-effectively and without delay. Exemptions also assist issuers in other countries to promote investments in New Zealand, adding to the diversity of investments available and making our market more competitive.

We aim to avoid conferring a competitive advantage on particular institutions and to respect the reasonable needs of both issuers and investors. We aim to base all exemptions soundly on securities law and to use conditions of exemption to set alternative compliance procedures for issuers. We prefer to grant class exemptions rather than individual exemptions. When time allows we consult publicly, particularly where an application involves significant policy questions. We recognise that an applicant company may incur costs in time and resources for this public benefit and we are grateful for this help.

We considered 92 applications for exemption from securities law and granted 78 exemptions. This compares with 85 exemptions considered in 2000/2001 and 70 notices issued. There are 187 exemption notices in force (161 as at 30 June 2001) and at 30 June 2002 there were 12 applications before the Commission.

An increasing number of applications are sought urgently. This taxes the resources of both the Commission and the Parliamentary Counsel Office, which is responsible for drafting exemptions. At times the urgency arises from a lack of planning by advisers. We remind the legal profession that applications should not be left to the eleventh hour. We endeavour to accommodate the reasonable needs of market participants but we cannot guarantee to meet issuers' timetables for urgent applications particularly if the application is poorly framed or inadequately thought through.

We endeavour to meet
the reasonable needs of
market participants but ...
we remind lawyers
that applications should
not be left to the
eleventh hour

The Corporations Act 2001 of the Commonwealth of Australia came into force on 15 July 2001. This Federal legislation is in substance the same as the various State Corporations Acts and the Corporations Law that it replaced. We updated 13 of our exemptions by substituting references to the old law with references to the new law.

Some 57 exemptions expire in September 2002. We consulted with parties affected by these exemptions or who have an interest in them. In the case of the individual exemptions we asked if the exemptions were still needed and, if so, whether any amendment was required. In the case of the class exemptions we sought comment on their operation. A good number of submissions, particularly on the class exemptions, have been received. We continue to consult as the exemption review progresses.

LAW REFORM

Responsibilities

make recommendations for law reform
review and comment on securities law and practice

Achievements this year

recommended changes to the law on investment advisers
made submissions on
- the Securities Markets and Institutions Bill
- the Business Law Reform Bill 2001
- insider trading and market manipulation
- a draft Cabinet paper on the review of our functions
- fraudulent investment schemes
continued the review of the Securities Regulations

9.1% of expenditure

Our August discussion paper Law Reform: Investment Advisers attracted many useful and thoughtful submissions. In general our proposals for reform were well received. The responses were taken into account in our recommendations to the Minister of Commerce in February. Our report on Gideon Investments Pty Limited and the role of Morison Guildford and Associates as investment advisers is a case study in support of changes to investment adviser law.

The Securities Markets and Institutions Bill, introduced into Parliament on 6 November 2001, was referred to the Finance and Expenditure Select Committee. The Committee reported back to the House on 4 June 2002. This is a significant piece of legislation for the Commission. It covers a variety of matters including

continuous disclosure by issuers
disclosure of dealings by directors
a civil enforcement role for the Commission in relation to insider trading
new rules for the regulation of stock exchanges
cross-border recognition of securities offers.

The Commission worked with the Ministry of Economic Development on the policy and drafting of this legislation. We made submissions to the Select Committee. When the Bill passes into law it will increase our responsibilities and have a positive impact on the Commission's ability to effectively investigate and take action against market malpractice.

The Commission commented on proposals for a Business Law Reform Bill which may include a number of changes to the Securities Act. We understand that a Bill is to be introduced into the House in the coming year.

Development of internationally
harmonised, high quality
financial reporting and auditing
standards, and compliance
with them, are important
issues world wide, with
significant implications
for New Zealand.

The Minister of Commerce released three discussion documents in May on insider trading, market manipulation and the penalties, remedies and application of securities trading law. The Commission helped develop these discussion documents at the invitation of the Ministry of Economic Development. Submissions should be made to the Ministry by Friday 30 August 2002.

Together with the Ministry of Economic Development we continued the review of the Securities Regulations 1983. Draft amendment regulations will be released for public comment early in the coming year.

Development of internationally harmonised, high quality financial reporting and auditing standards, and achieving compliance with those standards, are important issues world wide, with significant implications for New Zealand. We made submissions to the Financial Reporting Standards Board of the Institute of Chartered Accountants of New Zealand on exposure drafts for new financial reporting standards and guidance on related financial reporting matters. Recent high profile corporate collapses reinforce the need for sound financial reporting standards, competent and independent audits, strong regulatory frameworks and vigilant regulators. The Commission will continue to take an active interest in accounting and auditing matters.

The Commission commented on matters of interest at the invitation of other organisations, including the Law Commission and the Ministry of Social Development.

INTERNATIONAL LIAISON

Responsibilities

promote New Zealand as a well-regulated securities market
keep abreast of developments in global standard setting
contribute the Commission's view in an international forum
maintain good relationships with other regulators

Achievements this year

elected to the Executive Committee of the International Organization of Securities Commissions (IOSCO)
signed a Memorandum of Understanding with the Securities and Exchange Commission of Sri Lanka
took part in the Asia Pacific Regional Committee (APRC) of IOSCO
presented papers at OECD and ASIC conferences
undertook inquiry work in New Zealand on behalf of overseas regulators
co-operated with authorities in Thailand and other countries on fraudulent brokers

4% of expenditure

The Commission was elected to the Executive Committee of IOSCO at the annual meeting in May. This is a very prestigious appointment and we are proud of this achievement. It is important international recognition of New Zealand as an increasingly well-regulated market and one suitable for international investment. The Executive Committee is dealing with major matters arising from 11 September 2001 and the need for increased international cooperation and information sharing in the fight against international terrorism. It is promoting a multilateral Memorandum of Understanding with all IOSCO member countries. The Committee is also dealing with the implications of the ENRON collapse and issues relating to the independence of analyst reports arising from the Merrill Lynch case in the United States. Accounting and auditing standards and the demutualisation of stock exchanges are also on the IOSCO Executive Committee's agenda. Election to this international committee means that New Zealand will take an active part at a world level in addressing these important regulatory issues which, with the globalisation of world capital markets, are increasingly important here in New Zealand.

Some 160 regulatory and self-regulatory agencies are members and associates of IOSCO which works in five areas

multi-national disclosure of information including harmonisation of international accounting and audit standards
regulation of secondary securities markets including examining the use of the internet and other electronic communications
regulation of market intermediaries and their products
enforcement and exchange of information across national borders
investment management.

Under IOSCO's 1986 Rio Declaration signatories give reciprocal assistance in gathering information on market oversight and protection of investors against fraudulent securities transactions. New Zealand is a signatory to the IOSCO sponsored Declaration on Cooperation and Supervision of International Futures Markets and Clearing Organisations. This reinforces understandings reached between international futures exchanges and clearing houses in Florida in 1996 enabling them to share information on the financial resources and trading positions of people dealing in futures contracts. An important aim is to identify large exposures which may potentially have an adverse effect on markets.

The Commission signed a Memorandum of Understanding (MOU) with the Securities and Exchange Commission of Sri Lanka this year. We have MOUs with the Australian Securities and Investments Commission, the United States Commodity Futures Trading Commission, the Hong Kong Securities and Futures Commission, the Chinese Taipei Securities and Futures Commission and the Papua New Guinea Securities Commission. We have an exchange of letters with the United States Securities and Exchange Commission.

We took part in the annual meetings of APRC and of enforcement officers from the Asia Pacific region and the Implementation Committee. The Chairman presented a paper at the OECD's Round Table meeting in April and Norman Miller addressed the ASIC Summer School in February.

We responded to requests for assistance from the Financial Services Authority in London, the United States Securities and Exchange Commission and the Commodity Futures Trading Commission in Washington DC. We cooperated with authorities in Thailand, the Philippines and other countries in efforts to clamp down on the activities of illegal brokers eliciting money from people in New Zealand. We hosted a brief visit by representatives of the Bangladesh regulatory authorities.

The International Monetary Fund and the World Bank are assessing the soundness of the financial sector (banking, corporate governance, insurance, superannuation and securities markets) of all their member countries. An initial visit by the Financial Sector Assessment Program mission to New Zealand is expected in March 2003 and will be followed by an "on the ground" evaluation later in the year. The IOSCO Objectives and Principles are being used as a benchmark for the securities markets assessment.

PUBLIC UNDERSTANDING

Responsibility

promote public understanding of the law and practice of securities

Achievements this year

initiated a "meet the market" programme
published The Bulletin quarterly
upgraded the Commission's website www.seccom.govt.nz
responded to 2130 inquiries from the public
worked with journalists to increase media coverage of the Commission's work
issued public warnings and news releases
spoke to groups and met with market participants
published summaries of exemptions from securities law granted by the Commission

11.1% of expenditure

The Chairman initiated a programme to meet with market participants. This included speeches to large groups and smaller meetings at which she listened to the concerns and interests of people directly involved in the securities markets. The quarterly issues of The Bulletin reported our activities and comments on the securities market. Responses to a survey sent with the April 2002 issue indicated high levels of reader interest in the content. We last surveyed readers in 1999.

The website, www.seccom.govt.nz, brings together all the Commission's efforts to increase public understanding of securities law and practice by including publications, news releases, exemption summaries and warnings. There are many links to related information on other sites in New Zealand and overseas. A new design for the website made it easier for visitors to find what they want. On average 5000 individual visitors go to the site each month. New arrangements for hosting the site have reduced costs.

Staff responded to 2130 public inquiries. This compares with 1607 inquiries last year. We were inundated with calls from people following actions against brokers based in Thailand. Hits on our website also dramatically increased at this time. Our actions on contributory mortgages triggered many inquiries.

We have a positive attitude towards the news media and reporters show considerable interest in the Commission's work. We issued 32 media releases and initiated media interviews as well as responded to journalists' inquiries. In particular we promoted warnings about the risks of high return investments in a time of falling interest rates. High profile inquiries (e.g. Air New Zealand Limited and contributory mortgages) attracted considerable media coverage. We helped Consumer with several articles on scams and high risk investments.

We gave speeches, both in New Zealand and overseas, including addresses to investment adviser, industry and legal groups.

SERVICES TO THE TAKEOVERS PANEL

Responsibility

provide support services to the Takeovers Panel

Achievements

the Commission and the Panel signed a Memorandum of Understanding for provision of services
staff provided executive, administrative and support services to the Panel

19.3% of expenditure

The Takeovers Code came into force on 1 July 2001. Several Commission staff worked almost full time to provide support to the Panel during the first year of the Code's operation. Kerry Morrell is Senior Executive to the Panel and Tim Dolan is Secretary. They are supported at times by other staff. Senior Lawyer, Marion Hemphill, joined the staff in June 2002 to work full time for the Panel. Pressure on staff has been very heavy with complicated and complex takeovers, notably the contest for control of Montana Group (NZ) Limited at the time the Code came into force, and more recently the battle for control of Otago Power Limited. The high workload of the Commission meant that it was not always able to satisfy the additional resources sought by the Panel during the year. The Commission is continuing to recruit more staff to assist with the Panel's requirements. Services to the Panel are provided under a Memorandum of Understanding.

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