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Annual Report 30 June 2000

IN THIS SECTION:

NEW ZEALAND SECURITIES MARKETS

CONTENTS:

CHIEF EXECUTIVE'S REPORT

The work of the Commission has been enhanced with its income increased from $2.145 million in the year to June 1999 to $2.731 million in the year to June 2000, an increase of 27 percent. In addition the minimum level of funding for the next two financial years seems reasonably assured.

In the past it had been necessary to devote the major, if not the whole, part of the Commission's resources to reacting to urgent demands on our services. It had also been routinely necessary for us to make severe economies in the second half of each financial year until we had some understanding of the likely funding for the next financial year.

This year we have been able to focus systematically and confidently on identifying important questions in our securities markets, particularly in the area of surveillance and enforcement, and developing proposals for addressing them. This gives a wider strategic sense to the work of the Commission. We think as a result the community will see more tangible benefits from the work of the Commission in future years.

Our objectives in settling our work programme and determining our priorities have been:

to undertake surveillance and enforcement work where we have explicit statutory powers, giving particular priority to:

- the quality of offering documents,

- practices of investment advisers,

- insider trading,

to ensure securities market business is not impeded where we have immediate corrective powers and are able to provide an efficient and timely service. This relates particularly to exemptions and authorisations, also to appeals against decisions of the Registrar of Companies,

to ensure the policies for using our powers remain sound by reviewing them regularly,

to work for new or improved law where this is clearly in the public interest,

to keep abreast of developments in global standard setting and contribute to this process,

to promote New Zealand as a cooperative and well regulated country in which domestic and overseas investors and regulators can have confidence.

NEW ZEALAND SECURITIES MARKETS

This section briefly describes the securities markets in which the Commission performs its work. We have used the latest statistics available in each market sector. As well as using our own data bases, we obtained statistics from the Reserve Bank of New Zealand (RBNZ), the New Zealand Stock Exchange (NZSE) and the New Zealand Futures and Options Exchange (NZFOE).

The main types of securities held by New Zealand householders are debt securities including deposits with the registered banks, superannuation, unit trusts and group investment funds, life insurance and shares.

Figure 1 shows the distribution of householders' funds in these investments as at 31 March 2000. For the calculation of direct shareholdings we have assumed that New Zealanders hold 18 percent of NZSE capitalisation.

FIGURE 1. NEW ZEALANDERS' MAIN INVESTMENTS AS AT 31 MARCH 2000

Figure 1. New Zealanders' Main Investments as at 31 March 2000

DEBT SECURITIES

There were 18 registered banks as at 30 June 2000. All registered banks are subject to the prudential supervision of the RBNZ. They are also subject to the advertising provisions of the Securities Act 1978 and Regulations. The majority are subject to and abide by the rulings of the Banking Ombudsman.

The New Zealand household sector's aggregate investment in debt securities issued by both bank and non-bank financial (M3) institutions was $42.8 billion as at 31 March 2000, compared with $42.6 billion a year earlier.

There are a number of non-bank institutions undertaking business as continuous issuers of debt securities under Securities Commission exemptions. These include finance companies, building societies, stock and station agents, friendly societies and credit unions.

SUPERANNUATION

The total value of managed superannuation funds was $17.4 billion as at 31 March 2000 compared with $15.3 billion a year earlier. Of this figure $10.6 billion was invested in employer-sponsored schemes.

UNIT TRUSTS AND GROUP INVESTMENT FUNDS

The value of net assets under the management of New Zealand retail unit trusts and group investment funds was $11.2 billion as at 31 March 2000 ($10.3 billion last year). Of this $3.6 billion was under management with insurance companies, $2 billion with registered banks and $5.5 billion with other fund managers.

LIFE INSURANCE

The value of life insurance products with an investment component was $9.9 billion as at 31 March 2000 ($9.8 billion last year). This figure excludes term life products that have no investment component. Non-unitised insurance contracts (e.g. whole of life policies and endowment policies) comprised $7.5 billion and unitised insurance contracts (largely insurance bonds) comprised $2.4 billion.

EQUITY SECURITIES

The market capitalisation of New Zealand shares listed on the NZSE as at 30 June 2000 was $49.7 billion compared with $51.1 billion last year, a 3 percent decrease. Figure 2 shows that market capitalisation (measured at the end of each month) peaked in December 1999 at $54.4 billion. The largest new listing in the year was Tower Limited which listed in October 1999.

FIGURE 2. NZSE MARKET CAPITALISATION

Figure 2. NZSE Market Capitalisation

The value of share turnover in the year to June 2000 was $26.4 billion, a 4 percent fall when compared with $27.6 billion for the previous year. These figures include both on-market and off-market transactions in listed securities.

The ownership of New Zealand listed equities is dominated by offshore organisations. Institutional investors are the most prominent owners of New Zealand listed equities. The listing of Tower Limited in October 1999 resulted in an increase in the number of New Zealanders holding equities.

The NZSE is established under the Sharebrokers Amendment Act 1981. It regulates the conduct of its members and makes its own rules, subject to approval by the Governor-General. It makes its own Listing Rules under a consultation process with the listed companies. The Listing Rules were revised as at 1 January 1999. The Market Surveillance Panel regulates listed companies in accordance with the Listing Rules.

FUTURES CONTRACTS

The market is dominated by the 90 Day Bank Bill Futures Contract which accounts for 95 percent of total volumes. The demand for this contract has been significantly affected by the introduction by the RBNZ of an official cash rate, which has reduced some of the uncertainty about expected future interest rates. A total of 775,413 futures and options contracts was transacted on the NZFOE in the year to 31 March 2000, compared with 1,298,259 contracts last year.

The NZFOE is a limited liability company. All shares are held by the Sydney Futures Exchange. Sydney Futures Exchange Clearing House Limited is responsible for clearing, settling and guaranteeing contracts on the NZFOE. The Business Conduct Committee is responsible under the Rules of the NZFOE for surveillance and investigation matters. The NZFOE conducts night trading to enable overseas and New Zealand investors to trade during the hours when the major futures exchanges around the world are operating.

The futures markets are very largely wholesale markets which attract relatively little retail investment.

TECHNOLOGY TRENDS

New Zealanders' use of electronic technology to manage their private and business transactions continues to grow. It is standard practice in the securities markets to trade, clear and settle transactions electronically, for example all transactions on the NZSE and the NZFOE. This significantly reduces time lags and, in the case of the NZSE, facilitates scripless trading. The securities of New Zealand incorporated companies listed on the Australian Stock Exchange and held on the Australian register are transferred on the CHESS system of electronic transfer.

Any system for the transfer of securities by electronic means must be approved by the Government on the recommendation of the Commission.

Many New Zealand issuers offer investors the opportunity to receive investment statements and prospectuses via the internet or e-mail. Brokers offer their services on the internet.