2006 Annual Report

• Enforcement - inquiring into suspected breaches of securities law and intervening in the interests of investors in accordance with statutory powers.
• Monitoring and market oversight - maintaining oversight of securities market activity and taking actions in accordance with statutory powers.
• Enforcement-based law and practice reform - reviewing securities law and practice and making recommendations for reform.
• Exemptions and authorisations - 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 - 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 - promoting public understanding of the law and practice of securities."

• futures dealers,
• insider trading,
• secondary market disclosures (continuous, directors and officers, and substantial security holders),
• overseas brokers,
• offer documents,
• illegal offers,
• contributory mortgages.

This is done by:

• removing offer documents from the market, and prohibiting advertising,
• 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,
• referring for prosecutions,
• acting on behalf of overseas commissions.

• insider trading,
• NZX oversight,
• secondary market disclosures (continuous, directors and officers, and substantial security holders),
• futures dealers,
• overseas brokers,
• offer documents,
• financial intermediaries,
• illegal offers,
• contributory mortgages,
• corporate governance,
• financial reporting,
• regulatory co-ordination.

This is done by:

• overseeing the operation of NZX,
• reviewing practices of NZX market participants and issuers,
• assessing referrals from NZX,
• monitoring market disclosures,
• reviewing offer documents and advertisements for securities,
• responding to public complaints,
• using compulsory information gathering powers (inspections, summons),
• commenting publicly on market practice,
• accepting enforceable undertakings,
• reviewing financial reporting by issuers,
• reviewing corporate governance reporting,
• acting on behalf of overseas commissions.

The Commission completed 145 enforcement and monitoring and market oversight inquiries with a focus on insider trading, substantial security holder disclosure, illegal / unacceptable practices, offer documents, and financial reporting by issuers (budget for the year 160). The Commission commenced 6 significant enforcement and monitoring and market oversight inquiries (budget for the year 6). The Commission had two cases in the High Court, one of which was settled during the year (budget for the year 2). The Commission considered and commented on continuous disclosure applications under the MoU with NZX 14 times (budget for the year 8). As no changes to the Conduct Rules of the NZX were proposed, the Commission did not advise the Minister on any proposed changes on these rules (budget for the year 2 times).

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 applied them in a constructive and practical way to securities market practice. It acted independently.

The Commission endeavoured, consistent with the interests of investors, to carry out its enforcement and monitoring and market oversight 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 5 significant enforcement and monitoring and market oversight inquiries within an average of 6.4 months (excluding court cases) (budget 6 months). The Commission completed other enforcement and monitoring and market oversight inquiries within an average of 3.1 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.

The Commission allocated 6% of its expenditure to enforcement (budget 7%).

The Commission allocated 32% of its expenditure to monitoring and market oversight (budget 35%).

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

• the Securities Act 1978:
  • - administration and efficiency,
  • - surveillance, detection and enforcement 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 Act 2004.

Work, generally with NZICA and ASRB, on reviews of:

• international financial reporting standards,
• exposure drafts of financial reporting and auditing standards,
• the Financial Reporting Act 1993.

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 on Securities Act reforms. The Commission contributed to the financial products and providers review being undertaken by the Minister of Economic Development and to the work arising from the report of the Financial Intermediaries Taskforce. 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 contributed to reviews of domestic financial regulators and trans-Tasman regulatory coordination being led by the Treasury and the Ministry of Economic Development. The Commission also reviewed 6 exposure drafts of financial reporting and auditing standards of NZICA and ASRB.

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.

The Commission provided information and responses to the Ministry of Economic Development and others within agreed timeframes on all projects (budget 100%).

The Commission allocated 5% of its expenditure to this output (budget 5%).

• 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.

The Commission considered 60 new applications for exemption from securities law (budget for the year 70). We granted 45 individual exemptions. We granted or reviewed 6 class exemption notices (budget for the year "as required"). The Commission completed 2 special projects relating to its policy on existing or potential new exemptions (budget for the year 2). The Commission authorised 10 persons as trustees and/or statutory supervisors (budget for the year 10). The Commission authorised 3 people as futures dealers. The Commission made 2 futures contract declarations.

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.

The Commission considered and decided on all applications within 6 weeks or within timeframes agreed with applicants (budget 100%).

The Commission allocated 8% of its expenditure to this output (budget 11%).

Take part in the work of IOSCO’s:

• Executive Committee (Jane Diplock is Chairman of this committee),
• Asia Pacific Regional Committee (Jane Diplock is Deputy Chairman of this committee),
• Committee on the Implementation of Objectives and Principles of Securities Regulation,
• Communications Group.

Meet and confer with overseas regulators and institutional investors.
Contribute to implementation of the FSAP recommendations for New Zealand.
Respond to enquiries from overseas about New Zealand’s regulatory regime.
Participate in the international standard setting process by completing comparative surveys on securities law and regulation.
Fulfill the obligations of an Appendix A signatory under the IOSCO MMoU.

The Commission participated in IOSCO meetings of its Executive Committee, Technical Committee and Emerging Markets Committee (EMC) Advisory Board held during the period, also a Technical Committee conference, an EMC meeting, and an Asia - Pacific regional meeting. It fulfilled its commitment to IOSCO for the period (budget 100%). The Chairman participated in meetings with the Financial Stability Institute, Bank for International Settlements, Australian Securities & Investments Commission, International Monetary Fund, World Bank, US Commodity Futures Trading Commission and the US Securities and Exchange Commission, and also a meeting of the Financial Stability Forum. The Chairman was appointed a member of the Trustee Appointments Advisory Group of the International Accounting Standards Committee Foundation. The Commission hosted visits from the Securities and Exchange Commission of Sri Lanka, the Securities and Exchange Board of India, the Israel Securities Authority, and the China Securities Regulatory Commission. A revised bilateral MoU was signed with ASIC. New cooperative arrangements were signed with the Israel Securities Authority and the Financial Services Agency of Japan. A Commission Member participated in the OECD Roundtable on Capital Market Reforms.

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.

The Commission attended meetings and responded to requests for assistance within agreed timeframes on 100% of occasions (budget 100%).

The Commission allocated 19% of its expenditure to this output (budget 15%).

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.

The Commission published 4 issues of The Bulletin (budget for the year 4). The Commission dealt with 1454 miscellaneous inquiries from the public (budget for the year 1400). The Commission maintained and improved the website, and maintained relationships with the news media as required (budget "as required"). The Commission implemented and repeated the share scams / small business sub-project of its public education programme, and continued the youth sub-project.

Material in The Bulletin was interesting and relevant. Public inquiries were dealt with effectively. Information on the website was relevant and accurate. Relationships with the news media were constructive. The education subprojects successfully met their target objectives.

The Bulletin was published in July, October, January and April (budget July, October, January and April). 98 % 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.

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.

Provide services related to the Panel’s outputs including:

• review of Takeovers Code,
• approvals,
• exemptions,
• enforcement,
• market practice,
• public understanding,
• international liaison,
• administration.
• Develop and implement a public education programme.

Quantity, Quality and Timliness for services were as provided for in the

Memorandum of Understanding between the Panel and the Commission.

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 and monitoring and market oversight, 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.