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OVERSIGHT REVIEW OF NZX 2005

INTRODUCTION

9. The Securities Commission has reviewed NZX's performance of its regulatory functions as a registered exchange under the Securities Market Act 1988. This review, the first oversight review of NZX conducted by the Commission, focussed on NZX's arrangements in the 2005 calendar year for discharging its obligations.
10. NZX has obligations under section 36G of the Securities Markets Act 1988 to secure compliance with its listing and business rules, and to perform any obligations that lie on NZX under those rules.
11. The Commission has statutory functions to review practices relating to securities and activities on securities markets, and to comment on these. In relation to NZX, performance of these functions requires the Commission to keep under review and comment on NZX's performance of its obligations as a registered exchange.
12. The Commission carried out the review under Terms of Reference. The Terms of Reference, along with the scope of and background to the review and the process that we followed, are set out in the Appendix to this report.
13. This review incorporates NZX's progress on the recommendations made to NZX in 2005, in the Commission's report into Performance by NZX of its Regulatory Functions as a Registered Exchange During 2003 and 2004 Prior to the Collapse of Access Brokerage. NZX has taken steps to address those recommendations, which concerned documentation of procedures, record keeping, the roles of supervisors and the Board, client funds, and the NZX Fidelity Fund. The Commission notes that further work is intended by NZX in relation to policy issues concerning client funds and the fidelity fund.
14. We report on NZX's performance under the following themes:
    • conflict management;
    • arrangements for supervision of Market Participants;
    • arrangements for supervision of Listed Issuers;
    • arrangements for release of market information;
    • market operations and infrastructure;
    • disciplinary arrangements and NZX Discipline;
    • supervision of NZX as a Listed Issuer by the Special Division; and
    • governance.