Annual Report 30 June 1999

Funds were appropriated in the year ended 30 June 1999 for the purposes of the Commission on the basis that we perform the following functions:

• "Considering and deciding on the exercise of the Commission's statutory powers.

• Reviewing practices relating to securities and commenting to any appropriate body, reviewing the law relating to bodies corporate, securities, and unincorporated issuers of securities and making recommendations to the Responsible Minister for changes to the law.

• Promoting public understanding of the law and practices relating to securities.

• Considering and deciding upon applications for exemption from the Securities Act 1978 and regulations made under that Act." (Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 1999, volume 1, page 211).

For management and reporting purposes we divided our work into the following categories:

1. Exemptions,
2. Market authorisations,
3. Enforcement,
4. Reform,
5. Public understanding,
6. Administration.

A.    PERFORMANCE STANDARDS AND MEASURES

Category 1	Exemptions - to consider and decide on applications for exemptions from the provisions of the Securities Act and Regulations
Outcome	To remove impediments to the offering of securities in New Zealand and to encourage innovation. To promote confidence in securities markets.
Quantity	The Commission considered 69 exemption applications (budget 90 applications). It reviewed its procedures for receiving applications.
Quality	The Commission based its work on sensible interpretations of securities laws and their application in a constructive and practical way to securities market practice. It consulted extensively on new policy and on its formal expression in exemption notices. It acted independently and in accordance with the law.
Timeliness	The Commission gave priority to all exemption work. It completed individual items of work within reasonable timetables set by market participants. The only exception to this was in respect of an exemption application for overseas collective investment schemes. This raised wider policy questions affecting the community generally and there was a need for public consultation.
Cost	The Commission allocated 29% (budget 32%) of its expenditure to this output.
Category 2	Market Authorisations - to consider and decide on applications for authorisation of market participants, for example futures exchanges and dealers, trustees and statutory supervisors
Outcome	To secure minimum standards for specified classes of people undertaking securities market business. To encourage innovation and to promote confidence in securities markets.
Quantity	The Commission considered 10 applications (budget six applications) for authorisation.
Quality	The Commission considered applications in accordance with legal requirements 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 gave priority to authorisation work. It completed items of work within reasonable timetables set by market participants.
Cost	The Commission allocated 1% (budget 2%) of its expenditure to this output.
Category 3	Enforcement - to observe securities market activity and to intervene in the interests of investors in accordance with statutory powers
Outcome	To improve standards of behaviour in securities markets and to improve compliance with securities law.
Quantity	The Commission completed 65 enforcement inquiries (budget 50 inquiries) of which one was a major inquiry involving 630 hours of Commission time. It approved the prohibition of three company directors and managers (budget five approvals).
Quality	The Commission acted in response to market needs and in accordance with legal requirements 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. It tested its performance against the comments of the media and professional advisers to market participants.
Timeliness	The following enforcement work was treated as urgent and actioned immediately: all proposals to suspend prospectuses or investment statements or to prohibit advertisements; all requests for the Registrar of Companies to inspect the documents of issuers or promoters of securities or the investment advisers associated with them. Subject to resources and work priorities the Commission completed other enforcement work promptly. By doing this it minimised the commitment of resources by both market participants and the Commission. It ensured, where appropriate, that results were communicated promptly to market participants and the public generally.
Cost	The Commission allocated 35% (budget 36%) of its expenditure to this output.
Category 4	Reform - to review securities law and market practice, both domestically and across international frontiers, and to make recommendations for reform
Outcome	To improve the operation of securities law and established market practice both domestically and across international frontiers. To enhance New Zealand's reputation both domestically and overseas as a cooperative and well regulated country. To keep abreast of developments in both domestic and global standard setting and to contribute our views on this.
Quantity	The Commission issued statements or comments or reports on 18 matters (budget 20). Of these 15 matters related to the development of the New Zealand market and three matters related to cooperation with IOSCO and overseas securities commissions, and the development of global policies, codes of conduct and standards of behaviour. Very little work related to law reform, in particular to improvements to New Zealand statute law or regulation. Our resources for this are slender and the Ministry of Commerce is ultimately responsible for advice to the Government. The only significant new law reform project was a study, not yet completed, on a possible power for the Commission to give binding rulings on the application of securities law to market situations.
Quality	The Commission complied with its obligations under the Securities Act 1978 and with other relevant legislation. It based its work on sensible interpretations of securities laws and their application in a constructive and practical way to securities market practice. It secured widespread interest overseas in its views on the emerging IOSCO statement on the Objectives and Principles of Securities Regulation. It acted independently.
Timeliness	The Commission met the timetables of all those to whom its communications were addressed.
Cost	The Commission allocated 22% (budget 20%) of its expenditure to this output. Of this some 10% of expenditure related to international matters.
Category 5	Public Understanding - to promote public understanding of the law and practice of securities
Outcome	To increase the community's awareness and understanding of securities market practice, the policy of the law, and the importance of the Commission's work.
Quantity	The Commission published a quarterly Bulletin. It produced speeches, papers and reports as appropriate. It continued to develop the web site, in particular, by publishing Exemption Notes. The Commission supported other bodies promoting public understanding. It communicated regularly with the media and the public.
Quality	We surveyed recipients of The Bulletin on the quality and content of the publication. We conclude that it is useful and well regarded by those who replied to our survey. Public use of the web site increased steadily. We based our work on observed market practice and sensible interpretations of the law.
Timeliness	The Commission met production deadlines for The Bulletin and other public understanding projects.
Cost	The Commission allocated 13% (budget 10%) of its expenditure to this output.

B.    GENERAL OBSERVATIONS

Governance

The Commission Members are appointed by the Governor-General on the recommendation of the Minister having regard to their qualifications, experience, skill and reputation for integrity in the public market for securities. New appointments are made only after extensive advertising in the newspapers. All aspects of our work were kept under continuing review by regular reporting to Commission Members, by the frequent meetings of the Commission, a total of 127 during the 1999 financial year (12 regular monthly meetings and 115 quorum meetings including telephone conferences with decisions confirmed by resolutions in writing), and by supervision of staff by the Chief Executive. Where matters of significant policy arose at quorum meetings they were referred to a full meeting for further consideration by all Commission Members. The Commission reported quarterly to the Minister for Enterprise and Commerce.

Work Priorities

We reviewed our priorities at each monthly meeting of the Commission and our complete work programme quarterly. We assessed all requests for new work promptly. Where we were unable to undertake work, because it was not within the Commission's terms of reference, because it was not within our established priorities or because we believed another agency might be able to provide more relevant or more effective service, we said so promptly. Priority was given to work on exemptions and authorisations. We needed to ensure that the activities of market participants were not delayed or inhibited because we were not able to provide a prompt, relevant and effective service. Priority was given under enforcement to proposals to suspend prospectuses or investment statements and prohibit advertisements containing offers of securities to the public where these were thought to be misleading, to the requests of the Registrar of Companies, particularly requests to inspect documents of issuers or promoters of securities. Priority was given under Reform to the IOSCO Objectives and Principles of Securities Regulation and to the IOSCO Implementation Committee on the Objectives and Principles of Securities Regulation. Priority was given to all core aspects of our work on Public Understanding. We believe that much of our work could be completed more quickly if the procedures prescribed in the Securities Act 1978 for the administration of business, for example the procedures for meetings and the delegation of responsibilities, were simplified. We have made certain recommendations to the Government on this.