Memorandum of Understanding

NZSE and the Commission agree that the following key principles will guide them in dealing with referrals from NZSE to the Commission.

(a)	NZSE is the front-line regulator of its securities markets, in particular of matters that are regulated under the conduct rules of NZSE.
(b)	The Commission is the statutory regulator responsible for reviewing practices on securities markets and for enforcing certain breaches of the Securities Act and the Markets Act. The Commission also has a function to review and comment on practices relating to securities.
(c)	Certain matters that come to the attention of NZSE must be referred to the Commission under section 36ZD of the Markets Act.
(d)	Other matters that come to the attention of NZSE may be referred to the Commission under section 36ZL of the Markets Act.
(e)	It benefits all market participants when breaches of market standards are investigated and dealt with in a timely and effective way. It is important to an effective outcome that matters are dealt with by the appropriate regulator.
(f)	Referral procedures should be streamlined and efficient so that the Commission is promptly informed of matters of significance, so NZSE is able to provide the best quality information to the Commission, and so that regulatory gaps are minimised.
(g)	The Commission will provide feedback on referrals to assist NZSE in market regulation and to inform ongoing referral procedures.
(h)	Without limiting the jurisdiction of either to act in any case, the Commission and NZSE will discuss cases where there is an overlap of regulatory responsibilities, to avoid inappropriate duplication.
(i)	The Commission and NZSE recognise that NZSE may refer a matter to the Commission following a preliminary investigation by NZSE, where it appears a more effective outcome may be achieved through use of the Commission's statutory powers of inquiry.
(j)	NZSE and the Commission recognise that the Commission may refer matters to NZSE for investigation, in particular where a matter appears primarily to raise questions of compliance with NZSE's conduct rules.

Compulsory Referrals

The Commission and NZSE agree that where the Commission must be notified of a matter under section 36ZD of the Markets Act, NZSE will use all reasonable endeavours to do the following within 1 business day of NZSE taking action or knowing or suspecting of a significant contravention that requires notification:

(a)	inform the Commission of the action or event, the name of the contact person at NZSE for the matter under referral, the information required under section 36ZF of the Markets Act; and
(b)	advise an estimate of the time required to provide the further information set out in clause 4.4

Where all information required under S36ZF of the Markets Act cannot be provided to the Commission within 1 business day, NZSE will, within that time period, inform the Commission of the action or event to be referred and will advise the likely time required to provide the information specified in the Markets Act.

For the purpose of section 36ZJ of the Markets Act, the Commission requires any referral under section 36ZD to include the following additional information:

(a)	Where the referral relates to a known or suspected contravention of any conduct rule: (i) A description of the steps taken by NZSE in investigating the matter to date; (ii) A description of any intended action on the part of NZSE or its delegates and an indicative timetable for that action;
(b)	Where the referral relates to disciplinary action taken by the Exchange for breach of any conduct rules, whether in the Exchange's view the matter requires further investigation or action by the Commission or any other body.

Clause 4.4 does not limit the ability of the Commission to require the provision of any further information about any specific referral or the ability of NZSE to provide further information relating to a matter under referral.

The Commission and NZSE agree that information provided under section 36S of the Markets Act will be provided in writing to the Director of Enforcement at the Securities Commission.

For the purpose of section 36ZD of the Markets Act NZSE and the Commission agree that the question of whether any known or suspected contravention of NZSE's conduct rules or relevant legislation is a "significant contravention" will be determined on the facts of each particular case. In the event NZSE is in doubt about whether or not a matter may involve a significant contravention NZSE may refer the matter to the Commission under section 36ZL of the Markets Act.

The Commission and NZSE acknowledge that not every known or suspected contravention of NZSE's conduct rules or relevant legislation will be a significant contravention in terms of section 36ZD of the Markets Act.

The Commission and NZSE agree to maintain an active dialogue through the Strategic Group and the Operations Group concerning regulatory matters of particular concern to each other and to the market, to assist in the identification of matters for referral under section 36ZD of the Markets Act.

Discretionary referrals

NZSE is primarily responsible for surveillance of trading activity on its market and monitoring and enforcing compliance with its conduct rules. NZSE's surveillance may reveal information about trading activity that is indicative of insider trading, disclosure failures, market manipulation, or other matters relating to the functions of the Commission.

Where NZSE's market surveillance shows unusual movements in share price or trading volume NZSE will conduct a preliminary screening of the matter and may refer any matter to the Commission under section 36ZL of the Markets Act where the NZSE forms the view that this may assist the Commission in the performance of its functions.

Any referral made under section 36ZL will be made in writing to the Director of Enforcement at the Commission and will include the following information:

(a)	The names and contact details of the persons who are the subject of the referral;
(b)	A description of the activity or events leading to referral of the matter by NZSE, including any reports generated by NZSE's surveillance software;
(c)	A description of the steps taken by NZSE in investigating the matter;
(d)	The reason for referral of the matter to the Commission;
(e)	The name of the contact person at NZSE for the referral; and
(f)	Any other information held by NZSE relevant to the matter under referral.

Urgent referrals

Where in the opinion of NZSE a matter referred to the Commission may require urgent action on the part of the Commission (whether the referral is made under section 36ZD or section 36ZL of the Markets Act) the referral will clearly state this. Where possible the Director of Enforcement at the Commission will be warned of a pending urgent referral by telephone.

Where a referral is made on an urgent basis the initial referral will contain as much of the information required under this MOU as is possible in the time available, including the reasons for NZSE's view that urgent action is desirable. The further information required under this MOU will be provided as soon as practicable.

The Commission will give high priority to any urgent referral. The Commission will endeavour to assess an urgent referral and provide NZSE with a preliminary response, including an indication of intended action, within 2 trading days of receipt.

Commission action and reporting

Where a matter is referred to the Commission by NZSE under the Markets Act or this MOU the Commission will:

(a)	provide the specified contact at NZSE an indication of the length of time required to perform a preliminary assessment;
(b)	assess the matter referred to it as soon as practicable;
(c)	consult with NZSE in respect of the matter under referral; and
(d)	inform the specified contact at NZSE for the matter under referral of the outcome of that preliminary assessment.

The Commission will inform NZSE of any action on the part of the Commission, including, where appropriate, any exercise of the Commission's statutory powers or referral to other enforcement or regulatory bodies. NZSE acknowledges that these reports are confidential and are intended only for the purpose of NZSE's market regulation responsibilities.

Where it appears to either NZSE or the Commission that a matter notified to the Commission as a known or suspected contravention of a conduct rule may also involve a contravention of any enactment, NZSE and the Commission agree to consult on the desirable process for exercise of powers by each body before either body takes action in respect of the matter.

Where NZSE notifies the Commission of a suspected contravention of a conduct rule and advises the Commission that it intends to take action under the conduct rules the Commission will await the outcome of NZSE's action before taking the matter further, subject to the Commission retaining its discretion to exercise its powers and functions in the public interest where it appears to the Commission that the matter involves a possible contravention of an enactment.

It is acknowledged that where a referral relates to disciplinary action taken by NZSE under its conduct rules, further action may not be required on the part of the Commission.