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2002 Annual Report

STATEMENT OF OBJECTIVES

Funds were appropriated by Parliament for the year to 30 June 2002 for the stated purpose of:

"	•	Enforcement - maintaining oversight of securities market activity and intervening in the interests of investors in accordance with statutory powers.
	•	Authorisations - considering and deciding on applications for authorisation of market participants, for example futures exchanges and dealers, trustees and statutory supervisors.
	•	Exemptions - considering and deciding on applications for exemptions from the provisions of the Securities Act and Regulations.
	•	Reform - reviewing securities law and practice and making recommendations for reform.
	•	International liaison - promoting New Zealand as a well-regulated country; keeping abreast of developments in global standard setting and contributing the Commission's view to this process.
	•	Public understanding - promoting public understanding of the law and practice of securities."

(Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2002, volume 1, page 165).

STATEMENT OF SERVICE PERFORMANCE

OUTPUT 2		Authorisations - to consider and decide on applications for authorisation of market participants for example, futures exchanges and dealers, trustees and statutory supervisors.
Outcome		Reliable procedures and ethical practices for effecting transactions. Compliance with the law.
Activities included
		To authorise futures dealers and exchanges. To consider amendments to futures exchange rules. To approve trustees and statutory supervisors.
Quantity		The Commission considered 20 applications (budget for the year 6).
Quality		The Commission considered applications in accordance with legal requirements including, where appropriate, the rules of natural justice.
Timeliness		The Commission generally accorded a first level priority to authorisation work. It considered applications in a timely manner taking into account the needs of individual applicants and timetables agreed with them.
Cost		The Commission allocated 3.1% of its expenditure to this output (budget for the year 2%).

OUTPUT 3		Exemptions - to consider and decide on applications for exemptions from the provisions of the Securities Act and Regulations.
Outcome		Good standards of disclosure. Flexibility in development of best regulatory practice. Sound principles for market regulation. Cost-effective rules of law.
Activities included
		To receive and consider applications. To review existing exemptions. To undertake special projects.
Quantity		The Commission completed 92 exemption applications (budget for the year 80). It began a review, including public consultation, of class and individual exemptions due to expire in September 2002.
Quality		The Commission based its work on sensible interpretations of securities law and its application in a constructive and practical way to securities market practice. It consulted extensively on new policy and on its formal expression in exemption notices. It acted independently and in accordance with the law including, where appropriate, the rules of natural justice.
Timeliness		The Commission generally accorded a first level priority to exemption work. It considered applications in accordance with the needs of individual applicants and timetables agreed with them.
Cost		The Commission allocated 12.7% of its expenditure to this output (budget for the year 15%).

OUTPUT 4		Reform - to review and comment on securities law and practice and to make recommendations for reform.
Outcome		Good standards of disclosure. Reliable procedures and ethical practices for effecting transactions. Flexibility in development of best regulatory practice. Sound principles for market regulation. Cost-effective rules of law.
Activities/Quantity
		The Commission recommended changes to the law relating to investment advisers after public consultation. It worked, generally with the Ministry of Economic Development, on projects and reviews including: • the Securities Regulations 1983, • the Securities Act 1978: - administration and efficiency, - surveillance and detection powers, - exemption powers, • the law applying to insider trading and market manipulation, • regulation of stock exchanges. Other review projects included: • exposure drafts of financial reporting standards of ICANZ and ASRB, • application of the Fair Trading and Consumer Guarantees Act to securities and futures contracts.
Quality		The Commission complied with its obligations under the Securities Act 1978 and with other relevant legislation. It based its work on accurate research into, and analysis of, the existing law and practice. The Commission aimed to simplify the expression and content of the law. The process was based on wide and open consultation with all affected interests, including the general public or organisations representing sections of the general public. The Commission acted independently.
Timeliness		The Commission aimed to meet the timetables of all those to whom its communications were addressed. The Commission met agreed timetables when working on specific projects with other agencies.
Cost		The Commission allocated 9.1% of its expenditure to this output (budget for the year 15%).

OUTPUT 5		International Liaison - to promote New Zealand as a well regulated country. To keep abreast of developments in global standard setting and contribute the Commission's views to this process.
Outcome		To increase New Zealand's standing in the international community as a responsible and well regulated country. To ensure that domestic policy and practice are developed in the context of a sound understanding of best international policy and practice. To maintain good working relations with overseas regulators. To strengthen public and institutional confidence in New Zealand markets.
Activities		The Commission was elected to the Executive Committee of IOSCO at the annual meeting in May. The Commission took part in the work of the IOSCO Presidents' Committee, the Implementation Committee and the Asia Pacific Regional Committee. The Commission promoted improved communication through regulatory agencies globally in relation to: • overseas regulatory practices, • market malpractice, in particular in respect of cross border offers of securities. The Commission met and conferred with overseas regulators and institutional investors, in particular in Australia. The Commission was involved in discussions with the Australian Securities and Investments Commission, Australian Stock Exchange and the New Zealand and Australian governments regarding the Australian Stock Exchange's proposed changes to foreign exempt companies rules. The Commission signed a Memorandum of Understanding with the Securities and Exchange Commission of Sri Lanka.
Quality		The Commission presented itself as a constructive and cooperative member of the international community of regulators willing to contribute to enhanced international liaison and to assist with work on international regulatory issues.
Timeliness		The Commission met agreed timetables when working on specific projects with overseas agencies.
Cost		The Commission allocated 4% of its expenditure to this output (budget for the year 7%).

OUTPUT 6		Public Understanding - to promote public understanding of the law and practice of securities.
Outcome		Community awareness and understanding of securities market practice, the policy of the law and the importance of the Commission's work. Public and institutional confidence in New Zealand markets. Compliance with the law.
Activities included
		To undertake a "meet the market" programme. To publish The Bulletin, annual report and other documents. To maintain and develop the website. To publish exemption summaries on the website. To respond to public inquiries. To maintain contacts with the news media and otherwise provide information to the public. To produce speeches, articles and presentations.
Quantity		The Commission established a regular programme to meet market participants. The Commission published 4 issues of The Bulletin (budget for the year 4 issues), issued 32 news releases, upgraded the website and answered 2130 inquiries from the public (budget for public inquiries for the year 1500).
Quality		The Commission based its work on observed market practice and on sensible interpretations of securities law. It aimed to simplify the expression and content of the law. Material in The Bulletin and on the website was current, relevant and useful.
Timeliness		The Bulletin, the annual report and other public understanding projects were completed on time. Public inquiries were actioned within five working days of receipt.
Cost		The Commission allocated 11.1% of its expenditure to this output (budget for the year 10%).

OUTPUT 7		Takeovers Panel - to provide administrative and support services by agreement.
Outcome		To provide services in accordance with an annual agreement concluded under the terms of a Memorandum of Understanding between the Panel and the Commission.
Activities		These related to the Panel's projected outputs including: • Review of Takeovers Code, • Approvals, • Exemptions, • Enforcement, • Market Practice, • Public Understanding, • International Liaison, • Administration.
Quantity, Quality and Timeliness
		Services were as provided for in the Memorandum of Understanding between the Panel and the Commission.
Cost		The Commission allocated 19.3% of its expenditure to this output and recovered this amount from the Panel (budget for the year 14%).

B.		GENERAL OBSERVATIONS

Governance

Commission Members are appointed by the Governor-General on the recommendation of the Minister of Commerce having regard to their qualifications, experience, skill and reputation for integrity in the public market for securities. New appointments are made only after extensive advertising in the newspapers and personal interview by representatives of the Minister and the Commission. All aspects of work were kept under continuing review by regular reporting to Commission Members and by frequent meetings of the Commission, a total of 168 during the 2002 financial year (11 regular monthly meetings and 157 quorum meetings including telephone conferences with decisions confirmed by resolutions in writing). Where matters of significant policy arose at quorum meetings they were referred to a full meeting for further consideration by all Commission Members. The Commission reported quarterly to the Minister of Commerce. The Commission has an Audit Committee chaired by a chartered accountant. It met on four occasions during the year.

Work Priorities

Work priorities were reviewed at each monthly meeting of the Commission and the complete work programme was reviewed quarterly. All requests for new work were assessed promptly. When new work could not be undertaken because it was not within the Commission's terms of reference, because it was not within established priorities or because another agency might be able to provide more relevant or more effective service, applicants were notified promptly. Priority was given to enforcement, in particular to contributory mortgages, the review of offer documents, the activities of investment advisers and insider trading. Priority was given to work on exemptions and authorisations. The Commission aimed to provide a prompt, relevant and effective service so that the reasonable expectations of market participants were met and their activities were not delayed or inhibited.