Reform
In establishing our priorities for the review of securities law and practice we have concentrated on those matters which should represent a first call on our resources, important matters for which we have an explicit statutory responsibility.
The Ministry of Commerce has primary responsibility for business law reform including securities law reform. We confer with the Ministry on all aspects of our law reform work.
Securities Act 1978 We have recommended to the Government a number of amendments to the Securities Act. These amendments are aimed at improving the workability and administration of the legislation. We believe all these amendments are important and hope they will be enacted in the new year.
Rulings We are currently considering whether it might increase confidence and reduce compliance costs for issuers if the Commission were free to issue rulings on the interpretation of securities law. Anecdotal evidence suggests that market participants and securities law practitioners would consider such a function to be helpful. The terms for a possible rulings power are still under consideration. We expect to issue a discussion paper in the new year in consultation with the Ministry of Commerce.
Small and Medium Sized Enterprises The Commission has assisted the Ministry of Commerce to develop a policy to facilitate capital raising by small and medium sized enterprises.
Securities Regulations 1983 The Securities Regulations in their present form were enacted in 1983. They have not been comprehensively reviewed since then. A number of changes were made as a result of the work of the Working Group on Improved Product and Investment Adviser Disclosure. However, the Working Group was not able to undertake a comprehensive review of the Regulations.
It is intended to undertake further review work. This will afford an opportunity to make recommendations among other things:
- to reform outdated advertising rules,
- to better harmonise the financial reporting rules under the Financial Reporting Act and the Securities Regulations,
- to promote simplified business procedures for small businesses,
- to reduce compliance procedures for wholesale business to which the regulations apply,
- to identify any impediments to the communication of offer documents by electronic means,
- to carry forward the provisions of the more permanent exemption notices and make them more accessible.
The Ministry of Commerce wishes to take primary responsibility for this review. We have had preliminary discussions with the Ministry about its proposals for doing this work.
Financial Reporting We have continued to confer regularly with the Financial Reporting Standards Board of the Institute of Chartered Accountants of New Zealand (ICANZ) about financial reporting matters.
During the year we made comments to ICANZ on three exposure drafts and on aspects of existing standards. We also provided comment to ICANZ on the work of the International Accounting Standards Committee and the G4+1 group of accounting standard setters. We are continuing our efforts to encourage ICANZ to include in its work programme a standard on simplified financial statements for use by the prudent but non-expert investor.
The Accounting Standards Review Board approved one standard during the year, bringing the total number of approved financial reporting standards to 20. Issuers of securities are required to comply with these standards and they therefore have the force of law.
Securities Amendment Act 1988 We continue to confer with the Ministry of Commerce on possible amendments to the law relating to insider trading and dealing in futures contracts. We consider that the present law could function more effectively in accordance with its present policy if changes were made. We consider it important that these changes should be made unless there is a major review of the law.
We have still to complete our work on proposals for possible amendments to Part II of the Securities Amendment Act, relating to disclosure of substantial security holdings in public issuers. Our aim is to improve the quality of information supplied to the market, particularly in the area of convertible securities.
Review of the Securities Commission We cooperated fully with the Ministry of Commerce on its review. As mentioned elsewhere in this report, no immediate changes are planned to the role, functions and powers of the Commission.
Other Comments and Recommendations We have commented on matters of interest to the Commission at the invitation of the Ministry of Commerce, the Law Commission, ICANZ, and the Investment Savings and Insurance Association.
With the increasing influence of technology on securities markets, we have continued to review practices relating to electronic offerings and trading of securities. We are looking in particular at the challenges presented to regulators by the growth of advertising for securities on the internet. We see our objectives as being:
- to understand the potential uses of the new technology for securities markets,
- to ensure that the law does not impose inappropriate impediments to the use of the new technology, and
- to understand the opportunities for abuse of the new technology by dishonest people.
We have had discussions with members of the managed funds industry on these matters. We expect to set up a consultation forum with the industry.
Self-Regulation The Commission supports self-regulation under competent, independent, and preferably statutory oversight. In the course of exercising our statutory powers we have developed relationships in particular with:
- Advertising Standards Complaints Board,
- Local authorities in relation to their venture capital schemes, and
- New Zealand Thoroughbred Racing and Harness Racing New Zealand.
We confer with the NZSE and its Market Surveillance Panel, and with the NZFOE and its Business Conduct Committee. We have corresponded with the Exchanges and others about their Year 2000 preparedness.
International Liaison The Commission is an active member of the International Organisation of Securities Commissions (IOSCO). This comprises 163 regulatory and self-regulatory agencies including representatives of all major securities jurisdictions.
The principal programmes of work of IOSCO include:
- multi-national disclosure of information including harmonising international accounting and audit standards,
- regulation of secondary securities markets including examining the implications of the use of the internet and other electronic networks,
- regulation of market intermediaries and their products,
- cross-border enforcement and exchange of information,
- supervision of financial conglomerates, and
- the implementation of the IOSCO Statement of the Objectives and Principles of Securities Regulation.
The Commission has also been an active member of the Asia Pacific Regional Committee (APRC) of IOSCO, participating fully in its deliberations and leading a task force on Competition Policy and Securities Markets Regulation. The other members of the task force are the Malaysian Securities Commission and the Hong Kong Securities and Futures Commission. The Working Group has approached a number of international agencies about possible involvement in this project. All organisations have been very supportive in principle, but their resources were fully committed for the current financial year. We propose to continue our efforts to find a suitable sponsor in the new year. In the meantime we expect to publish an interim report.
By cooperating with securities regulators in other jurisdictions, the Commission is better able to facilitate the flow of securities across national boundaries. It uses its exemption powers for this purpose and in this way is able to minimise transaction costs for cross-border issuers of securities.
New Zealand is a signatory to the IOSCO-sponsored Declaration on Cooperation and Supervision of International Futures Markets and Clearing Organisations. The Declaration reinforces understandings reached between international futures exchanges and clearing houses signed in Florida in 1996. These enable participating exchanges and clearing houses to share information relating to the financial resources and positions of people trading in futures contracts. An important aim is to identify large exposures which may have a potentially adverse effect on markets. The 1995 Barings crisis gave increased incentive to regulators and the industry to share information across national boundaries. This was reinforced by the 1996 events in the copper market involving the Sumitomo Corporation.
In November 1998 IOSCO adopted its Statement of Objectives and Principles of Securities Regulation. In its final form the Statement contains 30 principles which are based on three objectives:
- the protection of investors,
- ensuring that markets are fair, efficient and transparent, and
- the reduction of systemic risks.
We made suggestions on drafts of the Objectives and Principles, many of which were accepted. However, New Zealand did not support the IOSCO resolution in its final form. A particular concern was the requirement, material to IOSCO's understanding of investor protection and fairness, that all persons providing investment services should be licensed and that all securities commissions should work for this in their respective jurisdictions. This is a commitment we are not in a position to give.
In the main we support the Objectives and Principles and we have secured a place on the Implementation Committee. We plan to promote New Zealand's interests in this committee by advocating an approach to the implementation of high regulatory standards on a global basis which is not too prescriptive or inflexible.
In November 1998 IOSCO members adopted unanimously the "International Disclosure Standards for Cross-border Offerings and Initial Listings by Foreign Issuers". The standards provide a generally accepted disclosure code for non financial information for use by issuers in cross-border offerings. They are intended to facilitate cross-border offerings by enhancing comparability of information and ensuring high regulatory standards.
In the meantime IOSCO is continuing to work with the International Accounting Standards Committee on a core group of international financial reporting standards. Again this is for the primary purpose of facilitating multi-national securities offerings and cross-border listings although some thought is being given, in New Zealand and elsewhere, to the adoption of international standards for general domestic use.
The Commission subscribes to IOSCO's 1986 Rio Declaration which calls on signatories to give reciprocal assistance in gathering information related to market oversight and protection of investors against fraudulent securities transactions. The Commission is also party to memorandums of understanding on information sharing and related matters with the Australian Securities and Investments Commission, the United States Commodity Futures Trading Commission, the Hong Kong Securities and Futures Commission, the Chinese Taipei Securities Commission and the Papua New Guinea Securities Commission. The Commission has an exchange of letters with the United States Securities and Exchange Commission. We are discussing the terms of a memorandum of understanding with the United Kingdom Financial Services Authority. We confer with a number of these organisations, and many other regulators, in the course of market inquiries.
We reported to IOSCO during the year on the Year 2000 preparedness of the New Zealand securities markets.
