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2005 Annual Report

FINANCIAL STATEMENTS

STATEMENT OF OBJECTIVES

for the year ended 30 June 2005

Funds are to be appropriated by Parliament for the year to 30 June 2005 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.

		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 markets. The Commission will achieve this by considering and deciding on applications for exemptions from the provisions of the Securities Act 1978, 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.

		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 the Commission’s presence in the markets. The Commission will achieve this by promoting public understanding of the law and practice of securities."

(The Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2005, Volume 1, page 191).

STATEMENT OF SERVICE PERFORMANCE

for the year ended 30 June 2005

A.: PERFORMANCE STANDARDS AND MEASURES FOR THE OUTPUTS OF THE COMMISSION

OUTPUT 1

Enforcement - maintaining oversight of securities market activity; inquiring into suspected breaches of securities law and intervening in the interests of investors in accordance with our statutory powers.

Outcome

Bad market practice is seen to be unacceptable and the law is complied with.

Activities included

To inquire into and if necessary take enforcement action, in particular, on:

•		dubious investment schemes,
•		offer documents,
•		contributory mortgages,
•		financial statements of issuers,
•		substantial security holder disclosure,
•		insider trading,
•		continuous disclosure,
•		disclosure of directors' dealings,
•		practices of investment advisers,
•		practices of fund managers,
•		requests from overseas commissions.
•		registered exchange activities,
•		futures market activities,
•		corporate governance reporting.

This is done by:

•		carrying out inspections and issuing summonses,
•		prohibiting advertising,
•		removing offer documents from the market,
•		commenting publicly on market practice,
•		taking civil enforcement action in the Courts in relation to substantial security holder disclosure, insider trading, continuous disclosure, disclosure of trading by directors and officers,
•		overseeing the operations of the stock exchange,
•		monitoring futures markets,
•		reviewing financial reporting by issuers,
•		monitoring corporate governance reporting,
•		acting on behalf of overseas commission.

Quantity

The Commission completed 201 surveillance or enforcement inquiries with a focus on insider trading, substantiall security holder disclosure, illegal / unacceptable practices, futures dealers, and financial reporting by issuers (budget 150). The Commission commenced 7 significant enforcement inquiries (budget 6). The Commission filed proceedings in the High Court in 2 cases (budget 2). The Commission considered and commented on continuous disclosure applications under the MOU with NZX 11 times (budget 8). As no changes to the Conduct Rules of the NZX were proposed, the Commission did not provide any advice to the Minister on these rules (budget 2 times)..

Quality

The Commission acted in response to the needs of investors and other market participants and in accordance with the law including, where appropriate, the rules of natural justice. It based its work on sensible interpretations of securities laws and their application in a constructive and practical way to securities market practice. It acted independently.

Timeliness

The Commission endeavoured, consistent with the interests of investors, to carry out its enforcement work making best use of resources committed by both market participants and the Commission. It gave priority to inquiries raising significant issues for investors and the market. The Commission completed 7 significant enforcement inquiries in an average of 5.3 months (budget 6 months) and other inquiries (excluding surveillance inquiries) within an average of 2.9 months (budget 3 months).

Where appropriate, results of its inquiries were communicated without delay to market participants and the public so that they derived maximum benefit.

The Commission met agreed timetables for activity on behalf of other commissions.

Cost

The Commission allocated 42% of its expenditure to this output (budget 42%).

OUTPUT 2

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

Outcome

The regulatory environment is relevant and effective.

Activities

Work, generally with the Ministry of Economic Development, on projects and reviews of:

•		the Securities Act 1978: - administration and efficiency, - surveillance and detection powers, - exemption powers,
•		the Securities Regulations 1983,
•		the Securities Legislation Bill,
•		investment advisers,
•		insider trading and market manipulation,
•		substantial security holder disclosure,
•		financial intermediaries,
•		regulation of stock exchanges,
•		corporate governance,
•		the Financial Reporting Act 1993,
•		the Crown Entities Bill.
Work, generally with ICANZ and ASRB, on reviews of:
•		international financial reporting standards,
•		exposure drafts of financial reporting and auditing standards,
•		the Financial Reporting Act 1993.

Quantity

The Commission made 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 draft Cabinet papers and draft legislation on the Securities Legislation Bill and Securities Act reforms. The Commission contributed to the financial sector review being undertaken by the Minister of Economic Development. The Commission liaised with the Ministry of Economic Development on the continuing review of the Securities Regulations and statutory amendments needed to complete that review. The Commission also reviewed 4 other law reform proposals and 7 exposure drafts of financial reporting and auditing standards of ICANZ and ASRB.

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 7%).

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 Receive and consider applications for exemption from securities law.
Review existing exemptions.
Undertake special review projects relating to policy on exemptions.
Authorise futures dealers and exchanges.
Consider amendments to futures exchange rules.
Approve NZFOX participant rules.
Approve trustees and statutory supervisors.
Review existing authorisations.

Quantity     The Commission considered 85 applications for exemption from securities law (budget 65). We granted 61 individual exemptions. We granted or reviewed 8 class exemptions (budget "as required"). The Commission did not complete any special projects relating to its policy on existing or potential new exemptions (budget 2). The Commission completed its review of authorised trustees and statutory supervisors. The Commission authorised 11 persons as trustees and/or statutory supervisors (budget 6). The Commission authorised 6 futures dealers and made 2 futures contract declarations.

Quality     All notices were issued in accordance with the law including, where appropriate, the rules of natural justice (budget100%). 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 11% of its expenditure to this output (budget 12%).

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 Take part in the work of IOSCO’s:

•    Executive Committee (Jane Diplock is Chairman of this committee),

• Asia Pacific Regional Committee (New Zealand is Deputy Chairman),

• Committee on the Implementation of Objectives and Principles of Securities Regulation,

• Communication Group.

Meet and confer with overseas regulators and institutional investors.

Quality     The Commission participated in the meetings of the IOSCO Executive Committee and the IOSCO Asia Pacific Regional Committee held during the period. It fulfilled its commitments to IOSCO for the period (budget 100%). The Commission hosted visits by the Australian Securities and Investments Commission, the IOSCO Secretary General and the China Securities Regulatory Commission. The Chairman, in her role as Chairman of the Executive Committee, also participated in the meetings of IOSCO’s Technical and Emerging Markets Committees. The Chairman participated in meetings with the IMF and the World Bank. A Commission Member attended the Tokyo Round Table on Capital Market Reform.

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 15% of its expenditure to this output (budget 13%).

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’s presence in the markets.

Activities
Publish The Bulletin, annual report and other documents.
Respond to public inquiries.
Manage the website.
Maintain relationships with the news media.
Develop and implement a public education programme.

Quantity     The Commission published 4 issues of The Bulletin (budget 4). The Commission dealt with 1466 miscellaneous inquiries from the public (budget 1300). The Commission maintained and improved the website, and maintained relationships with the news media as required (budget "as required"). The Commission implemented and completed 2 sub-projects of its public education programme, continued the youth sub-project, and implemented one new sub-project.

Quality     Material in The Bulletin was interesting and relevant. Public inquiries were dealt with effectively. Information on the website was relevant and accurate. The website was placed 8th of 57 government websites, and 4th of 25 Crown entity websites, when reviewed in April by State Services Commission appointed E-Gov Watch Ltd. Relationships with the news media were constructive. The education sub-projects successfully met their target objectives.

Timeliness The Bulletin was published in July, October, January and April (budget July, October, January and April). 99% of public inquiries not associated with ongoing work were actioned within 5 working days of receipt (budget 100%). Information on the website was up to date, and liaison with and responses to the news media met agreed timetables (budget "at all times"). Sub-projects of the public education programme were implemented and met agreed timetables

Cost     The Commission allocated 14% of its expenditure to this output (budget 13%).

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 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 13% of its expenditure to this output and recovered this amount from the Panel (budget 13%).

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 securities markets oversight.

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.

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