Applying New Zealand Equivalents to International Standards in Offer Documents The Commission is to issue one or more Practice Notes in relation to the transition to international financial reporting standards. All New Zealand issuers must adopt New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) for financial reporting periods beginning on or after January 2007. Some may choose to do so for financial reporting periods from January 2005. This is likely to have an impact on the financial information disclosed in offer documents. For example, if prospective financial information in an offer document is prepared using NZ IFRS, and the historical financial information included in the same document is prepared using current New Zealand Generally Accepted Accounting Practices, this may well impede meaningful comparison of the two sets of figures. In these circumstances, issuers should disclose additional information covering: the nature and impact of the main differences that will occur as a result of using the international standards, and material adjustments to an issuer's statement of financial position, financial performance and cash flows that will result from adopting those standards. Draft Practice Note In April the Commission sought public comment on a draft Practice Note, entitled Prospective Financial Information in Offer Documents Prepared in Periods Prior to Adoption of NZ IFRS in Historical Financial Reports. The Commission is considering comments received and the Practice Note is expected to be published shortly. A further issue is that New Zealand companies are likely to move to NZ IFRS at different times between 2005 and 2007. This may make it more difficult for investors and other market participants to compare financial information from different issuers and different business sectors. Following discussions with the Commission, the Financial Reporting Standards Board of ICANZ is developing a Financial Reporting Standard covering the disclosure of information in financial reports before entities adopt NZ IFRS. These disclosures will include information about the material expected impacts of adopting NZ IFRS. The FRSB will shortly release the proposed standard for exposure, and subsequently submit it to the Accounting Standards Review Board. In the interim, however, those preparing offer documents should consider carefully their existing obligation under securities law to disclose all material information to investors. Listed issuers should also be mindful of their obligation to disclose material information to the Exchange and securities markets on a timely basis as soon as it becomes known, in accordance with NZX's continuous disclosure rules. Directors' and Officers' Disclosure Many recent reforms to securities legislation aim to improve information disclosure, in order to reduce opportunities for insider trading. From 3 May 2004, all directors and officers of issuers listed on NZX or NZAX must disclose when they trade in securities of their company or any related company. The regime requires directors and officers of a public issuer to disclose relevant interests and dealings in securities within five trading days. The law relating to the new regime is the Securities Markets Act 1988 and the Securities Markets (Disclosure of Relevant Interests by Directors and Officers) Regulations 2003. The regime was to commence on 1 March 2004, but was delayed to allow persons affected to communicate the practical problems they expected to encounter in complying with the new regime. The Commission published a Practice Note (No 1) 2004 on 8 April 2004. This sets out how the Commission intends to approach enforcement of the law. After public consultation in March and April the Commission also published class exemptions from the new disclosure requirements. The class exemptions provide relief from the disclosure regime for trading in various unlisted securities, including some debt securities, life insurance policies, superannuation schemes, passive funds, units in unlisted unit trusts, and interests in unlisted group investment funds. There are also timing exemptions for some types of acquisitions, such as where securities are allotted under a dividend reinvestment plan, or employee share purchase scheme. The exemptions came into force on 3 May 2004. The full exemption notice and the Practice Note can be found on the Commission's website. Class Authorisations for Futures and Options Dealers New class authorisations for futures and options dealers in New Zealand were issued in April. The authorisations relate to the new regulatory regime for such dealers which came into effect on 3 May 2004. These changes follow the decision by the Sydney Futures Exchange to close the Futures and Options Exchange in New Zealand, and consolidate its operations in Sydney. The Authorised Futures Dealers Notice (No. 2) 2004 covers participants in the Sydney Futures Exchange. The Authorised Futures Dealers Notice (No. 3) 2004 covers futures and options participants under the New Zealand Exchange (NZX) Futures and Options Rules. NZX is the frontline regulator of NZX futures and options participants. The Securities Commission has approved the NZX Futures and Options Rules, and will continue to monitor these rules and their administration by NZX. As the statutory regulator of futures dealers, the Securities Commission will continue to authorise individual dealers who do not come into the categories covered by the class authorisations. Existing authorisations for electricity futures dealers and for some funds managers who deal in futures only as part of their funds management business are not affected by the new class authorisations.

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THE BULLETIN July 2004

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