
	Advanced Search

Review of the Securities Regulations 1983

INTRODUCTION

Background

The Securities Act 1978 ("the Act") was enacted in New Zealand in the wake of a series of financial collapses, notably of the Securitibank group of companies in 1976, that left many investors with substantial losses. People had invested in Securitibank without the benefit of a registered prospectus or equivalent disclosure document.
It was decided in the aftermath of these losses to introduce wide-ranging disclosure legislation that would apply to all persons seeking to raise funds from the public, replacing the narrow disclosure requirement set down at that time in the Companies Act.
The Act provided for the enactment of Regulations to give fuller and more detailed effect to the policy of the Act. The Securities Regulations 1983 ("the Regulations") were consequently enacted.

The Securities Regulations 1983

The Act regulates offers of securities to the public in New Zealand. The Regulations set out the content requirements for prospectuses, investment statements and advertisements that contain offers of securities to the public.
The Schedules to the Regulations set out the information required in prospectuses depending upon the type of security that is being offered, as well as the information required in investment statements. The Schedules originally covered only three specific types of securities - equity, debt and participatory securities. Since their implementation, they have been broadened to include unit trusts, superannuation schemes and life insurance policies, and extended to prescribe the content requirements and restrictions of investment statements.
The Schedules also prescribe the matters to be included in a trust deed for debt securities and in a participation deed for participatory securities.

Developments in securities market structure and products

The Securities Act and the Securities Regulations have now been in force for more than 21 years and 16 years respectively. During that time, it has become apparent that there are a number of ambiguities in the law. Also, there have been sophisticated developments in financial products that leave commercial and other fundraisers uncertain as to the requirements of the law. The structuring of the products and the methods by which they are offered continue to develop, often very quickly.
The principal international trends include:
- Product convergence
  Financial institutions have broadened their traditional business base to offer a wide range of products. For example, many banks now offer unit trusts or life insurance.
- Globalisation
  Increasingly, securities are offered to New Zealanders as part of a global offering.
- Regulatory convergence
  International regulatory bodies often encourage national regulators to adopt the same or comparable regulations across jurisdictions. In some respects this is a reaction to globalisation.
- The information technology revolution
  Rapid advances in information technology have enhanced the process of globalisation. They have increased the quantity of information available, but the quality of the information may vary enormously.
- Product innovation
  The last 15 years have been characterised by a high rate of innovation in financial products, particularly in lightly regulated regimes such as New Zealand. This is driven by commercial forces as much as deregulation. One result of this is that products often do not fall neatly into a single category.

Need for review

These factors create a challenge for regulators. Regulation needs to be flexible and technologically neutral to accommodate new financial products and technology. In a rapidly changing environment, it is to be expected that regulations will need to be periodically revised so as to maintain efficiency.

SCOPE AND PROCESS OF THE REVIEW

Scope of the review

The review of the Regulations will be conducted in two stages. This discussion document seeks comment on proposals arising out of Stage One of the review. Stage One involves a technical review of the Regulations. There are many areas where the Regulations are outdated, complex and repetitive. The changes proposed in Stage One are intended to simplify and modernise the Regulations by making changes that can be implemented simply and quickly to reduce compliance costs for issuers and simplify offer documents for investors, without departing from the fundamental policy objective of the Regulations.
That fundamental objective is to provide effective disclosure, in an appropriate format, of:
- information that is likely to assist a prudent but non-expert person to decide whether or not to subscribe for a security; and
- information that is likely to assist more sophisticated analysis of the value of the securities by those who have the skills to do so and whose views will drive market prices.
The two principal offer documents are intended to achieve these objectives in distinct but complementary ways. The investment statement should provide the key information prescribed in Schedule 3D to the Regulations, while the registered prospectus should disclose all material information, including the information prescribed in the Regulations.
This document has been developed taking into account suggestions for changes to the Regulations received from various stakeholders. A number of stakeholders have also made suggestions for changes that on reflection we consider fall within the scope of Stage Two of the review and these will be considered in that context. Examples of these areas include the overall relationship between matters included in prospectuses and investment statements, issues relating to employer superannuation schemes, short form prospectuses, term life insurance policies and half yearly financial statements for collective investment schemes including unit trusts. Moreover it has not been possible to consider questions that arise primarily under the Act, for example, the definition of such words as issuer, manager and promoter.
Stage Two of the review will re-examine the way in which the Regulations implement the policy of the Act. It will involve an assessment of the costs and benefits of different methods of regulating offer documents and advertisements for securities, taking into account developments that have occurred in the environment in which securities markets operate since the Regulations were developed. The aim of Stage Two of the review will be to develop rules that efficiently and effectively implement the policy of the Act.

Process and timeframes

The Ministry of Economic Development and the Securities Commission are working in partnership on this project. This discussion document has been prepared by the Ministry and the Commission to raise suggestions for the purposes of discussion and to obtain views from the public. Any proposals in it have not been endorsed by the Government or the Commission and do not represent Government or Commission policy.
The Securities Commission is an independent statutory body. Its functions include to keep under review the law relating to securities and to recommend changes. In participating in the preparation of this discussion paper it is acting in accordance with this function, and it invites public comment on the matters raised in the paper in accordance with section 70(3)(a) of the Securities Act 1978.
The Ministry and the Commission are seeking written submissions on this document. Submissions should arrive no later than the close of business on Friday 25 August and should be directed to:
Bronwyn Turley
Securities Regulations Review
Competition and Enterprise Branch
Ministry of Economic Development
33 Bowen Street
PO Box 1473
Wellington
Phone: (64 4) 470 2331
Fax: (64 4) 471 2658
Email: bronwyn.turley@med.govt.nz
Enquiries may be made in the meantime to Bronwyn Turley or to:
Kathryn Rogers
Securities Commission
Level 12, Reserve Bank Building
2 The Terrace
PO Box 1179
Wellington
Phone: (64 4) 472 9830
Fax: (64 4) 472 8076
Email: kathryn.rogers@seccom.govt.nz
Submissions on this discussion document will be considered before decisions on the proposals are made.
It should be noted that the contents of submissions provided to the Ministry and the Commission in response to this discussion document will be subject to the Official Information Act 1982. If the Ministry or the Commission receives a request for information contained in a submission, we would be required to consider release of the submission, in whole or in part, in terms of the criteria set out in the Act.
If you would like us to withhold information included in comments on this paper would you please let us know. Any request to withhold information will be considered in accordance with the Official Information Act 1982.

Submissions sought

We are particularly interested in receiving comments on the desirability, practicality and workability of the outlined proposals for change. In particular, we would like your views on the following issues in relation to the particular proposals:
- Do you think that the proposed change will be beneficial in the sense that it will make the Regulation/Clause simpler and easier to apply, while maintaining an appropriate level of disclosure?
- Do you think the amendment will result in a Regulation/Clause that will work well in practice?
- Can you identify any potential issues that would affect the workability of the Regulation/Clause if it were amended as proposed?
Also, we would welcome your suggestions as to any amendments not already mentioned in this paper that are within the scope of this review.

...PREV | CONTENTS | NEXT...