Investment advisers The Commission welcomes recent announcements by the Minister of Commerce, Hon Margaret Wilson, concerning financial intermediaries. The Minister is establishing a Task Force on the Regulation of Financial Intermediaries, including sharebrokers, mortgage brokers, insurance brokers and investment advisers. Members of the task force are due to be announced in November. The terms of reference are available from the Ministry of Economic Development website (www.med.govt.nz). "The Commission is concerned about the practices of some advisers," Chairman Jane Diplock said. "A number of these concerns will be addressed by the law changes already in progress as part of the Securities Trading Law Reform Bill. The Bill strengthens disclosure requirements for investment advisers, for example, and also gives the Commission the power to suspend investment advisers, and to apply to the Court for prohibition of advisers. "But the new legislation does not directly address the question of how best to regulate financial intermediaries - this will be for the task force to consider. "Sharebrokers, for example, are currently required to obtain a licence from the District Court, and are governed by NZX rules if they are members of NZX. But as the actions of Mauer-Suisse Securities demonstrated last year (a firm that did not belong to NZX), it can be too easy to gain a sharebroking licence in this country," Jane Diplock said. "The Commission looks forward to working with the task force on these issues." Securities law reform The Commission has been working on a review of the Securities Regulations 1983. There have been considerable changes in the capital markets environment since the Regulations were originally implemented. Some aspects of the Regulations also need to be clarified and simplified. A further aim has been to align the financial reporting requirements in the Regulations with generally accepted accounting practice (GAAP) and the Financial Reporting Act 1993. This would bring financial statements in offer documents into line with those in annual reports. However, legal questions have arisen concerning the ability to make Regulations under the Securities Act 1978 that refer to and incorporate GAAP and the Financial Reporting Act 1993. The Commission is working with the Ministry of Economic Development to resolve these issues. In the meantime, the proposed amendments that do not concern financial reporting requirements can proceed, and a consultation draft of the amending regulations will be released shortly. Report on Aquiline Holdings Limited The Commission has published a report on the registered prospectus and advertising prepared by Aquiline Holdings Limited for its share offer in April 2004. The Commission found that Aquiline was in breach of the Securities Act 1978, as the registered prospectus did not contain an adequate description of the process by which the board arrives at the share price. "If companies raising money from the public choose to use subjective pricing mechanisms for their shares, this needs to be very clearly highlighted for investors, along with the processes and procedures that will be undertaken to price the shares," Chairman Jane Diplock said. "Aquiline's prospectus was inadequate in the way it explained this for investors." The Commission also found that a newspaper advertisement for the offer breached the Securities Regulations 1983. The advertisement was likely to mislead or confuse investors about their participation in any growth of Aquiline in the time before conversion of the converting preference shares. In addition, information provided at the launch of the offer included prospective financial information which was not contained in the registered prospectus. This was in breach of the Securities Act 1978 and the Securities Regulations 1983. The Commission's report is available on our website. How to contact us Securities Commission Level 8, Unisys House 56 The Terrace, Wellington PO Box 1179, Wellington Telephone +64-4-472 9830 Facsimile +64-4-472 8076 Email seccom@seccom.govt.nz Website www.seccom.govt.nz If you would like to receive The Bulletin by email contact catherine.chapman@seccom.govt.nz The views expressed in The Bulletin do not necessarily represent the formal views of the Securities Commission, whether on securities or other matters.

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THE BULLETIN October 2004

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