Arthur Barnett Limited - Insider Trading Inquiry On 6 August 2002 Arthur Barnett announced that a takeover offer for all the company's shares was likely in the next ten days at a price significantly higher than the current market price. Shareholders were told not to sell pending further advice. Between 15 and 31 July, 604 Arthur Barnett shares traded at 72 cents. On 1 August 15,000 shares traded at 78 cents. The following day 15,273 traded at an average price of 82 cents. Accordingly, between 15 July and 2 August, the share price increased by some 14%. Subsequently the company was taken over by Belwalsh Holdings Limited at a price of $1.40 per share. The Commission's inquiry considered whether anyone with inside information about the proposed takeover offer may have bought shares, either directly or indirectly, or may have tipped another person about the offer, before the 6 August announcement. The inquiry found that one person bought all the shares traded between 15 July and the 6 August announcement (30,877 shares). On the evidence, these shares were bought as part of an original order (placed with a broker at the beginning of the year) to acquire 100,000 Arthur Barnett shares. The Commission questioned the person about the circumstances of the trading, his knowledge of the company and reasons for buying, as well as any links that he may have had with the parties involved in the takeover. The person's broker was asked about the circumstances in which the purchase order was placed. On the evidence the Commission could not establish that the person who bought the Arthur Barnett shares had inside information about the possible takeover. MOU with New Zealand Stock Exchange The Commission and NZSE Limited (NZSE) are to sign a memorandum of understanding. The MOU sets out how we will co-operate to effectively regulate the Exchange's securities markets and help each other fulfil our regulatory responsibilities under the legislation that came into force in December last year. The Securities Amendment Act 2002 and the Securities Markets Amendment Act 2002 give the Commission new roles and responsibilities for securities exchanges and markets. The Commission has a responsibility to keep under review activities on securities exchanges and to comment on these. The Securities Markets Amendment Act 2002 adds to the Commission's powers (under the former Securities Amendment Act 1988) relating to securities exchanges and exchange trading activity including insider trading, continuous disclosure, directors' disclosure, and substantial security holder disclosure. The new laws establish a co-regulatory framework under which both the Commission and NZSE have responsibilities to regulate activity in the securities markets. The Commission and NZSE intend to work closely together to achieve the goals of this legislation. The MOU will clarify our respective roles and how we will communicate and co-operate. We expect the MOU to be signed in February. It will be published to help market participants understand the respective roles and responsibilities of the Commission and NZSE and to promote transparency of our processes and decision-making. The MOU addresses matters including: referrals of disciplinary matters and suspected breaches of the law to the Commission from NZSE; referrals of suspected breaches of NZSE conduct rules to NZSE from the Commission; consultation on waivers from, and rulings on, the continuous disclosure provisions of the conduct rules; procedures (including prior consultation) relating to the Commission's power to give directions to NZSE; procedures for approval and disallowance of the conduct rules. The MOU sets out key principles to govern the way we work with NZSE. These include: to communicate in an open, honest, and timely way, to respond promptly to requests; to exchange information and ideas to improve surveillance and regulation by each organisation; to recognise the importance of compliance costs for market participants; to promote the efficient use of resources by communicating well and minimising duplication of surveillance and regulatory operations; and to provide feedback following investigations to assist in the efficient use of resources. The MOU is not intended to limit or affect the independence of either the Commission or NZSE. Some provisions of the MOU substitute for some provisions in the Securities Markets Act 1988 (as contemplated in that legislation). Except for these provisions, the MOU does not limit or affect the Commission's powers or the Commission's ability to act as necessary in the public interest. Except for these provisions the MOU does not require or oblige NZSE to provide any information to the Commission or to do anything other than its legal obligations. NZSE and Commission staff will meet regularly to assess the MOU's effectiveness and to discuss any changes to improve processes. Investment adviser law to be strengthened Commerce Minister Lianne Dalziel has announced changes to the disclosure regime in the Investment Advisers (Disclosure) Act 1996 as recommended by the Securities Commission. These will require financial advisers to disclose relevant information to clients. "Investors must be able to receive the disclosures they need to make informed decisions about whether or not to take advice offered by investment advisers," Lianne Dalziel said in December. The government is also going to make it an offence to recommend or deal in illegal offers of securities and the Securities Commission will be given the power to enforce investment adviser law. The Minister said the Government was committed to protecting investors from unscrupulous investment advisers, and had asked officials to examine the costs and benefits of introducing some form of licensing regime.

2

THE BULLETIN January 2003

[Page 1] || [Page 2] || [Page 3] || [Page 4]