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The Bill enables information to be shared between exchanges and the Commission, and sets out a consultation process on any intended waivers or rulings on continuous disclosure rules. The intention is for the Commission and registered exchanges to work together to achieve the continuous disclosure objectives.
The Commission and the New Zealand Stock Exchange (NZSE) are working on a memorandum of understanding setting out how we will co-operate to effectively regulate the market and to help each other to fulfil our regulatory responsibilities.
Directors' disclosure
Directors and senior officers of listed issuers are required to disclose any trading in their own company's securities. Trading must be disclosed within five days. This is to make trading by these people more transparent and to limit the opportunity for insider trading.
The disclosure obligations will arise whenever a director or a senior officer acquires a relevant interest in any security of the issuer. The term "relevant interest" encompasses a broad range of beneficial and non-beneficial interests in securities.
The disclosure requirement will be backed up by powers for the Commission to order disclosure or correction of disclosure, and by offence provisions for failing to disclose trading.
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Enforcement
The Bill increases the Commission's investigatory and enforcement powers. It gives the Commission power to carry out inspections under the Securities Act, and to require any person to produce documents for the purposes of the Securities Act, the Securities Markets Act (which will be the new name of the Securities Amendment Act 1988) and other legislation including the Investment Advisers (Disclosure) Act. This adds to the Commission's current power to ask the Registrar to carry out inspections.
Witnesses who are summoned to appear before the Commission will not be able to decline to answer questions on the basis that the answer may tend to incriminate them. This will enable the Commission to more readily get to the truth of a matter. As a balance, any evidence given to the Commission under summons will not be directly admissible in criminal proceedings against that person.
A new enforcement tool is the ability to accept undertakings from market participants relating to any matter before the Commission. The Commission can apply to the Courts to enforce these undertakings. Enforceable undertakings have been an effective enforcement tool overseas. The advantages are flexibility (allowing the person who has breached the law or market conduct standards to make up for this in a way that can be tailored to the situation) and costeffectiveness (avoiding the cost and delay
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of court proceedings for the Commission and the other person).
The Bill provides for civil enforcement of insider trading law by the Commission. However, insider trading cases are
notoriously hard to detect and prove in court, so no-one should expect a spate of court cases in the immediate future.
What the law change does mean is that an appropriate case is more likely to be taken to court as the Commission has
been provided, in this year's budget, with a litigation fund.
Criminal fines for breaches of securities law will increase significantly. Currently fines range from $10,000 to $25,000. The Bill raises the maximum fine to $300,000.
Process
The Bill has been reported back from select committee, and awaits its second reading and committee stage in the
House. It has a proposed commencement date of 1 December 2002.
We will be pleased to see this legislation come into force. We think it reflects a commitment on the part of the
government to New Zealand's securities market and to building investor confidence in those markets. We consider the Bill will enable the Commission to be more effective in its investigations and enforcement actions, and to better target its resources against serious market malpractice.
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Harts Contributory Mortgages Limited ordered to cease to act as contributory mortgage broker
The Commission ordered Harts Contributory Mortgages Limited (in liquidation) to cease to act as a contributory mortgage broker and appointed Crichton Horne & Associates Mortgage Brokers Limited to act as broker in its place.
The director of Harts Contributory Mortgages Nominee Company Limited was removed and David Crichton and Keiran Horne were appointed as directors at the end of July.
The Dorchester Group purchased Harts late last year and appointed the director in June 2002. The Commission decided to appoint a replacement broker and directors who are independent of Harts, its shareholder, its liquidator and other potentially interested parties.
Harts had contravened the Contributory Mortgage Regulations by failing to deliver its 2001 annual report to the Registrar of Companies. Also Harts had previously acknowledged extensive breaches of securities law under prior ownership and management. The Registrar had taken enforcement action relating to those breaches.
The Commission's action was in the public interest because Harts is in liquidation and will be unable to fulfil its duties as contributory mortgage broker. Investor inquiries should be made to Crichton Horne, Chartered Accountants, Christchurch.
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Inquiry into Vertex Group Holdings Limited
We are inquiring into the offer and allotment of shares in Vertex Group Holdings Limited (Vertex) for its
initial public offering in June 2002. The inquiry will also look into the trading of Vertex shares prior to the
company's profit warning on 4 September 2002.
On 4 September 2002 Vertex announced anticipated shortfalls to profits forecast for the six months to
30 September 2002 in the investment statement and registered prospectus.
After the announcement the NZSE referred the matter to the Commission and to the Market Surveillance Panel. The Panel is investigating Vertex's compliance with the Listing Rules of the NZSE.
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