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Annual Report 30 June 2000

IN THIS SECTION: CHAIRMAN'S REVIEW

CONTENTS: Statement of Purpose Notable Events Members Chairman's Review Chief Executive's Report New Zealand Securities Markets Enforcement Authorisations Exemptions Reform Internationl Liaison Public Understanding Administration and Staffing ----------------------------- Role, Functions and Powers Financial Statements Statement of Responsibility Statement of Objectives Statement of Service Performance Report of the Audit Office ----------------------------- Staff How to Contact Us

CHAIRMAN'S REVIEW

The Commission has a wide range of interests and responsibilities in respect of securities markets. The Securities Act covers products as diverse as listed shares, life insurance, superannuation, real estate and other syndications, bank deposits, unit trusts, interests in retirement villages and shares in credit unions. The legislation focusses on proper disclosure of securities that are offered to the public.

The Commission's grant for the year was increased. This allowed us to increase the level of surveillance and enforcement, and we could publish a number of discussion papers and reports. These reviews often result in voluntary compliance by market practitioners where a particular practice is regarded by the Commission as undesirable or unacceptable.

The Commission has reviewed and commented on some secondary market matters including substantial security holdings and insider trading in New Zealand public listed companies. The Commission does not have any formal enforcement rights in insider trading cases. The legislation leaves any action in the hands of the company whose shares are the subject of the insider trading, or of past or present shareholders of that company. Although the Commission does not have an enforcement role, in one case where it commented on market practice voluntary restitution has been offered to those parties suffering loss as a result of insider trading. A similar result was achieved with a case in the previous year.

The Commission does have some powers to enforce securities law. It may suspend or prohibit prospectuses, investment statements or advertisements where the Commission forms the opinion they do not comply with the law or are false or misleading. It refers other cases to the Serious Fraud Office, the Registrar of Companies, the Commerce Commission or the Police for enforcement action where appropriate.

One of the Commission's roles is to grant exemptions where appropriate from the prescriptive disclosure provisions of the Securities Act and Regulations. Often the Commission will impose substitute disclosure requirements more suitable to the particular product being offered. This reduces the costs of bringing new products to the market while at the same time providing investors with better and more meaningful information on which to base their investment decisions.

This is the first full year in which the Commission has been able to recover costs for exemption work with a significant positive impact on the Commission's funding. It is pleasing to note that applicants for exemption have been generally supportive of the levying of fees for cost recovery.

The Commission has taken an increased part in international standard setting for good securities market regulation. The International Organisation of Securities Commissions (IOSCO) is about to implement a series of Objectives and Principles to which securities law world wide should conform. The Commission's interest has been to influence the formulation of those Objectives and Principles in a manner which is appropriate for a small country with a disclosure-based regime such as New Zealand.

The Commission assisted the Australian Securities and Investments Commission to host the annual meeting of IOSCO in Sydney this year. It was a most successful conference and resulted in a high profile for the Commission. This helps in advancing New Zealand's views when international rules of conduct for securities markets are being settled.

For most of the year the Commission operated with eight Members rather than the full complement of 10, putting pressure on Members who are all busy people. The Members bring a great deal of market knowledge and specialist expertise to the Commission's work and their commitment is appreciated. Stephen Franks resigned during the year on becoming a Member of Parliament. Stephen had been a Member for only a short time but made a valuable and significant contribution. Lloyd Kavanagh was appointed as a Member in August.

A high level of work was achieved during a year where it has not been possible to recruit a full complement of staff. The Chief Executive and staff have produced good results under severe time pressures. Their work is demanding and responsible and staff have put in long hours. The Commission is very grateful for their efforts and congratulates them on a successful year.

Next year is likely to be interesting and challenging. Projects include a major overhaul of the Securities Regulations, introduction of the Takeovers Code and a review of insider trading law as well as the basic work of exemptions, surveillance of the market and cooperation with overseas jurisdictions in cross-border enforcement. Another area that will be considered is the effect of electronic commerce in the securities markets.

The Commission will continue to focus on promoting investor confidence in the New Zealand securities markets as well as reducing compliance costs for those accessing capital.

E.H. ABERNETHY CHAIRMAN