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2003 Annual Report

ACHIEVEMENTS

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

attended the two meetings of the Executive Committee of IOSCO held during the year
applied to become a signatory to the IOSCO Multilateral Memorandum of Understanding
agreed the terms of a memorandum of understanding with the China Securities and Regulatory Commission
took part in the Asia Pacific Regional Committee (APRC) meetings of IOSCO
APRC accepted our offer to host its February 2004 meeting in Wellington
prepared for New Zealand's assessment in the Financial Sector Assessment Program (FSAP)

9.3% of expenditure

IOSCO is a global forum for securities regulators. Some 168 regulatory and selfregulatory agencies are members, associates and affiliates of IOSCO which is increasingly recognised as the international standard-setting body for securities regulation. IOSCO 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; and
investment management.

Signatories to IOSCO's 1986 Rio Declaration 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.

International Meetings and MOUs
The Commission attended the two meetings of the Executive Committee held since we were elected to that body last year. Discussions covered the implementation of a new multilateral MOU, cooperation with international financial institutions, membership criteria and finances. The IOSCO Annual Meeting, due to be held in May 2003, was deferred until later in the year because of the outbreak of the Severe Acute Respiratory Syndrome in Asia. New Zealand applied to be a signatory to the Multilateral MOU and completed the detailed questionnaire required to accompany the application. The Commission agreed the terms of an MOU with the China Securities and Regulatory Commission. This is expected to be signed at the IOSCO Annual General Meeting in Korea in October.

We also 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, the Papua New Guinea Securities Commission and the Securities and Exchange Commission of Sri Lanka. We have an exchange of letters with the United States Securities and Exchange Commission.

We took part in the annual meeting of the APRC and presented a paper on New Zealand's perspective on cross-border coordination of securities markets regulation at the APRC Enforcement Directors' annual meeting. The APRC accepted our offer to host its next meeting in Wellington in February 2004.

IOSCO Objectives and Principles
Sound prudential principles and practices for the regulation and supervision of securities markets are crucial to the stability of global financial markets. The IOSCO Objectives and Principles of Securities Regulation are one of the international standards and codes regarded as a key to sound financial systems. As a member of the Task Force on implementation of the objectives and principles, we participated in drafting a methodology for assessing implementation of the principles.

FSAP
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. The FSAP mission to New Zealand is expected in October. It will focus on significant issues for financial stability and orderly development and will include assessment of securities markets regulation. The IOSCO Objectives and Principles will be used as a benchmark for the securities markets assessment. We are preparing for FSAP by conducting a critical self-assessment and liaising with other agencies involved in the process.

PUBLIC UNDERSTANDING

Responsibility

promote public understanding of the law and practice of securities

Achievements this year

published The Bulletin quarterly
added a registration facility to the Commission's website to alert people to new items
responded to 1566 inquiries from the public
maintained good relationships with the news media
held media briefings jointly with the NZX on co-regulation
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
developed strategies for public education for implementation in the 2003-2004 year

9.2% of expenditure

The quarterly issues of The Bulletin reported our activities and comments on the securities market. Responses to a survey sent with the April 2003 issue indicated high levels of reader interest in the content and an understanding of the respective roles of the Commission and the NZX under the new law. 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. This year we introduced a facility for users to register to receive email alerts to new material on the site. This has been well received and more than 600 people have registered. There are many links to related information on other sites in New Zealand and overseas. On average 13,500 individual visitors go to the site each month.

Staff responded to 1566 public inquiries. We issued 29 media releases and initiated media interviews as well as responded to journalists' inquiries. In particular we promoted the co-regulatory roles of the Commission and the NZX and held joint media conferences in Wellington and Auckland. High profile inquiries (Wakefield, Vertex and Westpac/BT) attracted considerable media coverage. We have a positive attitude towards the news media and reporters show considerable interest in the Commission's work.

The Chairman, Members and staff maintained an intensive programme to meet with market participants. This included speeches to large groups, and meetings of smaller groups to hear the concerns and interests of people directly involved in the securities markets.

The Commission aims to publish on the website a summary of each exemption granted. These describe the effects of the exemption, the conditions of exemption and the Commission's reasons for granting it. Summaries of 81 exemptions were published during the year.

Funding was approved in the May 2003 budget for new public education projects. Strategies for two projects were developed for implementation in the 2003-2004 year. One project aims to help New Zealanders make better investment decisions, the other seeks to develop an agreed set of principles for good corporate governance in New Zealand.

SERVICES TO THE TAKEOVERS PANEL

Responsibility

provide support services to the Takeovers Panel

Achievements this year

staff provided executive, administrative and support services to the Panel

21.2% of expenditure

The Takeovers Code continued in force for its second full year. Four Commission staff worked almost full-time, and three others worked part-time, to provide support to the Panel during the year. Kerry Morrell is Senior Executive to the Panel and Amelia Longuet was appointed Secretary to the Panel in April 2003. Pressure on staff has been very heavy, at times for significant periods, with complex and controversial takeovers and other Code transactions. These included the takeover offers of GPG Forests Limited for Rubicon Limited, Lowe Corporation Limited for Blue Sky Meats (N.Z.) Limited and PPCS Limited for Richmond Limited, and more recently a share buyback undertaken by TrustPower Limited. The high workload of the Commission meant that it was not always able to completely satisfy the resources sought by the Panel during the year. Services to the Panel are provided under a Memorandum of Understanding. The Commission maintains a good working relationship with the Panel.

OTHER GOVERNMENT AGENCIES

The Commission values its relationships with other Government agencies including the Ministry of Economic Development, the Registrar of Companies, the Serious Fraud Office, the Commerce Commission and the State Services Commission.

ADMINISTRATION AND STAFFING

2002-2003 has been a time of growth. Five additional staff were appointed during the year to help with the workload from increased enforcement work and the new responsibilities given to the Commission when the Securities Markets and Institutions Bill came into force in December 2002. The increase in the number of employees has put severe pressure on accommodation space and we are looking to move into new premises in the 2003-2004 year. We increased the opportunities for training and many staff members attended professional development courses during the year.

The Commission is grateful to staff for the work they have done this year and particularly for their efforts dealing with major inquiries and handling urgent issues. Staff produced high quality work often under considerable time constraints.

At 30 June 2003 there were 26 full time and two part time staff.

ROLE, FUNCTIONS AND POWERS

The role and functions of the Commission include:

to keep under review the law relating to bodies corporate, securities and unincorporated issuers of securities and to recommend changes to the Minister of Commerce
to keep under review practices relating to securities and to comment on these
to cooperate with overseas securities commissions
to keep under review securities markets activities and to comment on these
to advise the Minister of Commerce on securities exchanges' conduct rules and amendments to those rules
to promote public understanding of the law and practice of securities
to provide administrative and support services to the Takeovers Panel
to perform any other functions conferred by law.

To perform these functions we have a number of powers. These include:

to receive evidence as to securities law and practice, with power for this purpose to summon any person to appear before us
to publish reports and comments
to exempt persons from compliance with provisions of the Securities Act or of Regulations under the Act
to suspend or cancel a registered prospectus
to suspend or prohibit an investment statement
to prohibit advertising of any securities
to approve trustees and statutory supervisors
to carry out inspections
to accept enforceable undertakings
to hear appeals against certain decisions of the Registrar of Companies
to recommend regulations
to enforce insider trading and substantial security holder law
to enforce continuous disclosure law and to make orders requiring disclosure by issuers
to make orders requiring disclosure by unregistered exchanges
to require an exchange to provide information and assistance to the Commission
to administer the law relating to futures contracts
to recommend approval of electronic systems for the transfer of securities
to receive financial statements of issuers which do not comply with the Financial Reporting Act 1993.

The Commission may also consider certain matters arising under the Corporations (Investigation and Management) Act 1989 (in particular, directions to "at risk" corporations and declarations of statutory management).

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