CHAIRMAN'S REVIEW
Investors and issuers both benefit when countries participate in global markets. Investors have greater choice of investment and issuers have access to a greater pool of capital.
Global markets, however, are subject to fluctuations and distortions that occur in one jurisdiction but affect other countries. In the year under review, for example, the Asian crisis and other events occurred outside New Zealand but had significant effects on our securities markets.
There have been calls for countries to adopt international standards of financial and securities market regulation. There are proposals to have adherence to international standards monitored by international organisations such as the International Monetary Fund and the World Bank.
New Zealand's disclosure-based regulation is a low cost regime which suits New Zealand conditions and operates in an effective manner. That is not to say that the rules are perfect and cannot be improved. The Securities Regulations, and the Act itself, have outdated aspects. The Commission has commented on difficulties in interpretation and enforcement of insider trading rules. There are other areas where improvements can be made to bring certainty to securities markets and to reduce costs to issuers and to investors. However, the basic rules are sensible and effective and very suitable for New Zealand.
The Commission has been active in promoting New Zealand as a well regulated country.
In the past year the Commission has also been lobbying to have internationally acceptable principles and objectives of securities laws expressed in terms that accommodate New Zealand's position (and that of other countries like New Zealand).
This work will form an important part of the Commission's work in the next financial year.
The extent to which market rules are enforced will continue to be an increasingly important aspect of the assessment of the effectiveness of New Zealand securities laws. Our disclosure approach, placing responsibility as it does on an issuer to provide proper disclosure, requires proper sanctions for non-compliance and active enforcement.
The Commission has been unable in recent years to devote the time and resources that it would have liked to this work. It has not been adequately funded for this. There was a real danger that New Zealand market rules would be seen as not satisfactorily enforced.
The increase in funding recently announced by the Government is very timely. Funding for the Commission's work should be kept under constant review.
The Commission's financial performance resulted in a lower deficit for the year than budgeted. This difference in financial performance was due to two main factors. There was a change to the Securities (Fees) Regulations allowing the Commission to charge reimbursement fees for exemptions and authorisations from January 1999. Secondly, early in the year and before the change in the fees regulations, the Commission took steps to reduce its expenditure by operating without a full complement of Members and with a minimum of staff. This cannot be sustained long term.
Members and staff have all contributed to maintaining the high level of outputs in priority areas. Members contribute their time and expertise willingly in spite of competing demands on them. They perform a valuable public service. David Stock's term of office expired in April 1999 after ten years' service as a Member of the Commission. David has most generously given of his wide knowledge, his time and advice and his contribution to the work of the Commission will be missed.
The Chief Executive and staff have worked hard to maintain the level of service and outputs of the Commission in a difficult year. They are to be congratulated on producing such a good result.
The Commission is looking forward to the current financial year and beyond. Government is securing additional funds for the Commission. The Commission will be able to extend its surveillance and enforcement role to promote investor confidence. It will be able to assist the Ministry of Commerce in a long overdue review of the Securities Regulations. The Commission will also be able to participate more effectively in international standard setting.
Securities markets contribute to the economic development of the country while providing a vehicle for individual savings and investment.
The Commission will continue to play a role in promoting confidence in the markets and reducing compliance costs.
E.H. Abernethy
Chairman
