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2004 Annual Report

ACHIEVEMENTS

EXEMPTIONS AND AUTHORISATIONS

The Commission's goal in this key result area is that the securities law regimes are tailored to the needs of the market.

Responsibilities

consider applications for exemption from securities law
review existing exemptions
authorise futures dealers and exchanges
review existing authorisations
approve amendments to futures exchange rules
approve trustees and statutory supervisors
designate certain substantial security holders
approve electronic systems for the transfer of securities

Achievements this year

granted class exemptions for directors and officers disclosure
considered 84 applications for exemption from securities law
granted 76 exemptions
approved the NZX Futures and Options Participant Rules
developed class authorisations for NZX Futures and Options Participants and Sydney Futures Exchange Participants

10% of expenditure

EXEMPTIONS

The Securities Act empowers us to exempt people from compliance with various provisions of securities law. The power to grant exemptions from the law is very significant. We aim to base all exemptions soundly on the policy of securities law. Conditions of exemption provide alternative compliance procedures so that the spirit of the law, particularly the requirement to provide investors with relevant information on which to base investment decisions, is complied with. Directors and advisers of issuers who are granted exemptions, or who rely on class exemptions, should be aware of this.

We use our exemption power to remove rigidities in the law for traditional investment products and to facilitate offers of new products, and products offered by overseas issuers, so that they are available to the public cost-effectively and without delay. 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.

The increase in exemptions for initial public offerings, and the timetables for those offerings, placed pressures on both our resources and those of the Parliamentary Counsel Office this year. We have endeavoured to meet the reasonable needs of market participants when considering exemptions.

Directors and Officers Disclosure
The Commission prepared a number of class exemptions for the new directors' and officers' disclosure requirements under the Securities Markets Act 1988. This law came into force on 3 May 2004, and the Commission exemptions were in place in time for this. We granted exemptions from the disclosure requirements for relevant interests held in:

unquoted debt securities for which there is no established market;
life insurance and superannuation policies;
interests in passive funds; and
unit trusts and group investment funds of related bodies corporate of a public issuer.

We also granted exemptions from the obligation to make disclosure within five days of an acquisition or disposal that is made under a:

share top-up plan;
employee share scheme; or
dividend reinvestment scheme.

This exemption was granted on the condition that disclosure is made, either by the individual concerned, or by the public issuer, within 30 days of the transaction. Further minor exemptions were granted to cover disclosures already made to NZX, disclosure by directors and officers of co-operatives, and overseas listed issuers who have dual primary listings overseas. We published a practice note which explained our approach, for enforcement purposes, to certain aspects of the new law, in particular the definition of the term "officer".

Australian Registered Managed Investment Schemes
The Commission reviewed its class exemption for offers of interests in Australian Registered Managed Investment Schemes. The new exemption allows the use of an Australian Product Disclosure Document in place of both a registered prospectus and an investment statement. The new exemption also makes changes to the conditions of exemption concerning filing of documents with the Registrar of Companies. Issuers are still required to file all documents, however a failure to file more minor documents will no longer result in subsequent allotments being void under the law.

We considered 81 new applications for exemption from securities law, reviewed one existing exemption notice, and completed two special projects. We granted 76 new exemptions. In 2002/2003 we reviewed 52 existing exemptions, considered 51 new applications, and granted 102 new exemptions. There are 171 exemption notices in force (149 as at 30 June 2003).

We have adopted the practice of including a Statement of Reasons in each exemption notice. We aim to publish on our website a summary of each exemption granted which describes the general effects of the exemption and the Commission's reasons for granting it. This year we published summaries of 53 exemptions.

AUTHORISATIONS

New Zealand Futures and Options Exchange
In 2003 Sydney Futures Exchange Limited confirmed its intention to move the NZFOE's operations to Australia. In September 2003 NZX and the Sydney Futures Exchange Limited reached an agreement for NZX equity futures and options products to be traded on SFE. NZX also proposed that it would take up a frontline role in the regulation of futures dealers in New Zealand. The Commission welcomed this announcement.

In March 2004 futures contracts traded on the New Zealand Futures and Options Exchange were transferred to the Sydney Futures Exchange. Under an agreement with the Commission the New Zealand Futures and Options Exchange continued to provide regulatory services for futures dealers in New Zealand until 3 May 2004.

From 3 May 2004 NZX assumed a role as frontline regulator of NZX Futures and Options Participants. The Commission published a class authorisation which allows any person who is designated as an NZX Futures and Options Participant to deal in futures contracts subject to the NZX Futures and Options Participant Rules which were approved by the Commission. The Sydney Futures Exchange Limited remains an authorised futures exchange in New Zealand. The Commission has also published a class authorisation allowing SFE Participants to deal in futures contracts that are traded on SFE.

The Commission considered 12 applications for authorisation as futures dealers and authorised nine futures dealers.

Trustees and Statutory Supervisors
The Commission has continued its review of trustees and statutory supervisors. We intend to revoke a large number of approvals, principally for persons who are no longer acting as trustees or statutory supervisors. New approvals will be for a maximum period of five years. Those approved will be required to report to the Commission annually, and on any material changes that affect their approval.

The Commission granted one new approval to a statutory supervisor during the year.

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