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Annual Report 30 June 2000

IN THIS SECTION:

EXEMPTIONS

REFORM

CONTENTS:

EXEMPTIONS

Section 5(5) of the Securities Act empowers us to exempt persons and classes of persons from compliance with various provisions of securities law subject to appropriate terms and conditions. We give high priority to this work.

We use this exemption power to remove rigidities in the law affecting traditional investment products and to facilitate the development of new investment products, in each case so that they can be offered to the public in a timely and cost-effective manner. We also use this exemption power to assist certain offshore public issuers to promote investments in New Zealand. This adds to the diversity of investments available in New Zealand and makes the market more competitive.

We aim to avoid conferring a competitive advantage on particular investment institutions and to respect the reasonable needs of both the institution seeking the exemption and investors, present and prospective. We aim to ensure that all exemptions are soundly based on the general policies of the Securities Act and Regulations. We rely heavily on terms and conditions of exemption in achieving these objectives, by establishing alternative compliance procedures which issuers will need to adhere to in order to receive the benefit of the exemption.

We prefer to issue class exemptions rather than individual exemptions where we can. We prefer to consult widely when time allows, particularly where an exemption application involves significant policy questions. We recognise that this may involve an applicant company in the expenditure of time and resources for the public benefit. We are grateful to the companies and industry organisations which have given us their help on individual projects.

SIGNIFICANT EXEMPTION WORK COMPLETED THIS YEAR INCLUDED:

the New Zealand Stock Exchange-New Capital Market (NCM) exemption which aims to reduce costs for small companies operating on the NCM by allowing flexible rules for presenting and distributing offer documents including use of the internet,

review of the credit unions exemption, in the course of which, after extensive consultation, we discontinued the exemption from the rules about the trustee and trust deed. Credit unions must now comply more closely with securities law. In the meantime the Government has decided to raise the prescribed client exposure limit from $40,000 to $250,000,

the Great Britain Collective Investment Schemes notice which exempts authorised unit trusts and open-ended investment companies based in England and Scotland from aspects of New Zealand securities law when making offers in New Zealand.

In total we considered 80 exemptions and we issued 70 exemption notices during the year. This compares with 69 exemptions considered in 1998/1999 and 58 notices issued that year. There are 160 exemption notices now in force (there were 151 as at 30 June 1999). As at 30 June 2000 there were 13 applications before the Commission.

We conferred with the Ministry of Economic Development on the benefits of a possible extension of the Commission's exemption powers to apply not only to individual issuers and classes of issuers but also to offers defined by reference to the type of transactions or to the class of persons to whom the offer is to be made.

REFORM

In establishing our priorities for the review of securities law and practice we have concentrated on those matters for which we have an explicit statutory responsibility and matters which relate to our effectiveness as a Securities Commission.

The Ministry of Economic Development has primary responsibility for business law reform including securities law reform. We confer with the Ministry on all aspects of our law reform work. We also confer regularly with other agencies including the New Zealand Law Society and ICANZ, and the community more generally.

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 of the Act and administration of the Commission. We believe they are important. We hope they will be included in next year's Business Law Reform Bill or a Securities Amendment Bill.

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 in 1996 as a result of the work of the Working Group on Improved Product and Investment Adviser Disclosure. However, the Working Group was not empowered to undertake a comprehensive review of the Regulations.

The Ministry of Economic Development and the Commission are jointly undertaking a review. This is in two stages. In the first technical stage we aim to simplify and modernise the Regulations in the context of existing regulatory policy. In the second stage we will examine the fundamental policy of the Regulations and the way in which they implement the broad policy of the Act. The aim is to complete the first stage promptly. It affords us the opportunity:

to reform outdated advertising rules,

to better harmonise the financial reporting requirements 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,

while at the same time achieving the central objective of ensuring that investors are well informed about the schemes or the companies in which they invest.

A discussion paper on the first stage, reflecting suggestions of interested parties as well as the Ministry and the Commission, has been prepared and will be released for public comment.

RULINGS

We have prepared a discussion paper on a possible scheme under which the Commission might have power to make rulings on the application of securities law. Issues include whether such a power would increase confidence, better protect the rights of investors and eliminate unnecessary compliance costs. The discussion paper was released for public comment on 7 June 2000. We intend to study all comments carefully before deciding whether to make a recommendation to the Government for formal action.

TAKEOVERS

Government has announced that it intends to introduce a Takeovers Code. The Commission is to provide executive and administrative support services to the Takeovers Panel. We have been working with the Ministry of Economic Development on the legislative amendments needed to enable the Commission to do this work.

RETIREMENT VILLAGES

We released a public discussion paper on the way the Securities Act 1978 applies to offers to the public of interests in resident funded retirement village schemes. The paper considers the continuing uncertainty on the way the Act applies to some of these offers. We think this uncertainty should be addressed. We suggest an amendment to the law to empower the Government by regulation to make offers subject to the disclosure and supervisory provisions of Part II of the Act in circumstances where they are not currently subject to these provisions. We have invited comment by 12 July 2000.

SMALL AND MEDIUM SIZED ENTERPRISES

We worked closely with the Ministry of Economic Development on the Government's policy for assisting small to medium enterprises to raise capital. Our work focussed on three areas where changes to the Securities Act could be particularly helpful to small issuers. These were:

to relax the rules against pre-prospectus publicity to allow issuers to "test the water" before committing to the costs of a public offer,

to allow offers to be made to informed and sophisticated investors without the need for mandated disclosure,

to broaden the range of situations in which the Commission can grant exemptions from the law. This would allow the Commission to grant exemptions that apply to particular types of transaction, or to offers aimed at particular classes of investors, or by reference to warnings that are given to particular classes of investors.

We considered these changes should apply generally and be by way of amendment to the Securities Act.

At the exemption level we made significant changes to our exemption for venture capital schemes for local authority and economic development agencies. These aim to help agencies to set up a national electronic investment service available to registered investors via an intranet. We also developed a policy for the exemption of the New Capital Market of the NZSE. This exemption aims to ensure that investors have good access to material information about market offers while reducing costs to issuers by maximising use of the internet to deliver company announcements and offer documents.

We see both of these exemptions as a testing ground for possible future law reform, particularly in the area of electronic access to offer information.