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2004 Annual Report

FINANCIAL STATEMENTS

Funds are to be appropriated by Parliament for the year to 30 June 2003 for the stated purpose of:

"		Enforcement - The Commission's goal in this key result area is that bad market practice is seen to be unacceptable and the law is complied with. The Commission will achieve this by maintaining oversight of securities market activity; inquiring into suspected breaches of securities law and intervening in the interests of investors in accordance with its statutory powers.
		Authorisations - considering and deciding on applications for authorisation of market participants, for example futures exchanges and dealers, trustees and statutory supervisors.
		Enforcement-based law and practice reform - The Commission's goal in this key result area is that the regulatory environment is relevant and effective. The Commission will achieve this by reviewing securities law and practice and by making recommendations for reform.
		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. The Commission will achieve this by considering and deciding on applications for exemptions from the provisions of the Securities Act 1978 and the Securities Amendment Act and Regulations; considering and deciding on applications for authorisation of market participants, for example futures exchanges and dealers, trustees and statutory supervisors; reviewing existing authorisations.
		International recognition - The Commission's goal in this key result area is that New Zealand's markets and regulatory environment are respected internationally, creating a climate for increased investment and good relationships with overseas regulators. The Commission will achieve this by promoting New Zealand as a well-regulated country, keeping abreast of developments in global standard-setting and contributing the Commission's views to this process.
		Public Understanding and Market Presence - The Commission's goals in this key result area are that people understand the law and practice of securities and that the Commission has a presence in the markets so that people know what we do and where we stand on issues affecting the markets. The Commission will achieve this by promoting public understanding of the law and practice of securities."

A.

PERFORMANCE STANDARDS AND MEASURES FOR THE OUTPUTS OF THE COMMISSION

OUTPUT 2

Enforcement-based law and practice reform - reviewing securities law and practice and making recommendations for reform.

Outcomes	The regulatory environment is relevant and effective.
Activities included
		The Commission worked, generally with the Ministry of Economic Development, on projects and reviews of: •   the Securities Regulations 1983, •   the Securities Act 1978: - administration and efficiency, - surveillance and detection powers, - exemption powers, •   investment advisers, •   insider trading and market manipulation, •   substantial security holder disclosure, •   regulation of stock exchanges, •   corporate governance, •   the Financial Reporting Act 1993, •   the Crown Entities Bill. The Commission reviewed 11 exposure drafts of financial reporting and auditing standards of ICANZ and ASRB.
Quantity		The Commission did not make any recommendations for securities law reform in compliance with its obligations under the Securities Act 1978 and other relevant legislation. The Commission commented to the Ministry of Economic Development on the Business Law Reform Bill, proposed regulations, amendment regulations, and Cabinet papers on disclosure of trading by directors and officers, and the Crown Entities Bill.
Quality		The Commission complied with its obligations under the Securities Act 1978 and with other relevant legislation. It based its work on thorough and accurate research into, and analysis of, the existing law and practice. It took into account the regulatory impact and business compliance costs of reforms. The Commission aimed to simplify the expression and content of the law. It consulted widely and acted independently.
Timeliness		The Commission provided information and responses to the Ministry of Economic Development and others within agreed timeframes on all projects (budget 100%).
Cost		The Commission allocated 5% of its expenditure to this output (budget 6%).

OUTPUT 3

Exemptions and authorisations - considering and deciding on applications for exemptions from the provisions of the Securities Act 1978, the Securities Markets Act 1988 and the Securities Regulations 1983; considering and deciding on applications for authorisation of market participants, for example, futures exchanges and dealers, trustees and statutory supervisors; reviewing existing authorisations.

Outcome		Securities law regimes are tailored to the needs of the market.
Activities included
		To receive and consider applications for exemption from securities law. To review existing exemptions. To undertake special review projects relating to policy on exemptions. To authorise futures dealers and exchanges. To consider amendments to futures exchange rules. To approve NZFOX participant rules. To approve trustees and statutory supervisors. To review existing authorisations.
Quantity		The Commission considered 81 new applications for exemption from securities law (budget 70) and reviewed 1 existing exemption notice (budget "as required"). The Commission completed 2 special review projects relating to its policy on existing or potential new exemptions (budget 2). The Commission approved the NZX Futures and Options Rules. The Commission considered 12 applications for authorisation (budget 10). The Commission authorised 9 futures dealers and 1 person as a trustee and statutory supervisor.
Quality		All notices were issued in accordance with the law including, where appropriate, the rules of natural justice (budget 100%). The Commission based its work on sensible interpretations of securities law and applied them in a constructive and practical way to securities market practice. It consulted extensively on new policy. It acted independently.
Timeliness		The Commission considered and decided on all applications within 6 weeks or within timeframes agreed with applicants (budget 100%).
Cost		The Commission allocated 10% of its expenditure to this output (budget 16%).

OUTPUT 4

International Liaison - promoting New Zealand as a well regulated country; keeping abreast of developments in global standard setting and contributing the Commission's views to this process.

Outcome		New Zealand’s markets and regulatory environment are respected internationally, creating a climate for increased investment and good relationships with overseas regulators.
Activities included
		The Commission took part in the work of IOSCO’s: •    President’s and Executive Committees, •   Asia Pacific Regional Committee, •   Committee on the Implementation of Objectives and Principles of Securities Regulation, •   Communication Group. The Commission met and conferred regularly with overseas regulators and institutional investors. The Commission took part in the 2003 Financial Sector Assessment Programme (FSAP) evaluation of New Zealand.
Quality		The Commission attended the meetings of the IOSCO Executive Committee held during the period, the IOSCO Annual Meeting, and the IOSCO Communication Group. The Chairman was elected Chairman of the IOSCO Executive Committee, and the Commission was elected Deputy Chair of IOSCO’s Asia Pacific Regional Committee. The Commission hosted the Asia Pacific Regional Committee meetings in Wellington in February. It fulfilled its commitment to IOSCO for the period (budget 100%). The Commission was accepted as a signatory to the IOSCO multilateral MOU, and signed bilateral MOUs with its counterpart regulators in China, Indonesia and Malaysia.It hosted visits by the Securities and Futures Commission of Korea and the China Securities Regulatory Commission. The Chairman attended the OECD Roundtable on Capital Market Reform. The Commission met with Members of the Australian Securities and Investments Commission.
Quantity		The Commission presented itself as a constructive and cooperative member of the international community of regulators. Views expressed to IOSCO and others took into account relevant New Zealand values and principles.
Timeliness		The Commission attended meetings and responded to committees within agreed timeframes on 100% of occasions (budget 100%). The Commission met the timeframes of overseas agencies (budget 100%).
Cost		The Commission allocated 14% of its expenditure to this output (budget 9%).

OUTPUT 5

Public Understanding - promoting public understanding of the law and practice of securities.

Outcomes		People understand the law and practice of securities and the Commission has a presence in the markets so that people know what we do and where we stand on issues affecting the markets.
Activities included
		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 contact with the news media and otherwise provide information to the public. To deliver speeches, articles and presentations. To initiate and carry out a public education programme. To publish principles of corporate governance for New Zealand.
Quantity		The Commission published 4 issues of The Bulletin (budget 4) and issued 31 news releases (budget "as required"). It published 53 summaries of exemptions granted. The Chairman and staff gave 14 formal speeches, and attended functions specifically for discussion with market participants. The Commission dealt with 1506 miscellaneous inquiries from members of the public (budget 2000). The Commission maintained relationships with the news media as required (budget "as required"). The Commission initiated a public education programme. The Commission published, after extensive consultation, a report on corporate governance in New Zealand and an accompanying handbook for directors.
Quality		Material in The Bulletin was current, relevant and useful. Public inquiries were dealt with effectively. Information on the website was relevant and accurate, and relationships with the news media were constructive.
Timeliness		The Bulletin was published in July, October, January, and April (budget July, October, January, and April) as scheduled. Two sub-projects of the public education programme were implemented and 1 other sub-project was approved in principle. 98% of public inquiries not associated with ongoing work were actioned within 5 working days of receipt (budget 95%). Information on the website was up to date and meetings with and responses to the news media met agreed timetables (budget "at all times").
Cost		The Commission allocated 17% of its expenditure to this output (budget 11%).

OUTPUT 6

Takeovers Panel - providing administrative and support services by agreement.

Outcomes			Services are provided to the Takeovers Panel in accordance with an annual agreement under the terms of a Memorandum of Understanding between the Panel and the Commission.
Activities			To provide services related to the Panel’s outputs including:
	•		Review of Takeovers Code,
	•		Approvals,
	•		Exemptions,
	•		Enforcement,
	•		Market Practice,
	•		Public Understanding,
	•		International Liaison,
	•		Administration.
Quantity, Quality and Timeliness for services were as provided for in the Memorandum of Understanding between the Panel and the Commission.
Cost			The Commission allocated 12% of its expenditure to this output and recovered this amount from the Panel (budget 16%).

B.

GENERAL OBSERVATIONS

Work Priorities

Work priorities were established under the Commission’s strategic planning process. Work on hand was reviewed by the Commission monthly and new priorities set where necessary.

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 insider trading, the review of offer documents, and the activities of investment advisers. 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.