Developments in Securities Regulation

1. Developments inSecurities Regulation John Holland Member

2. Securities Commission Promotes • the efficiency and integrity of securities markets and their cost-effective regulation Purpose is to • strengthen market confidence and foster capital investment in New Zealand

3. Securities Commission • 28 years old • Early focus on functions & securities law • Ability to “review & comment” • Exemptions from securities law • Light-handed regulation

4. Need for reform • To attract investment and be accepted in the international financial community New Zealand needed regulation that aligned with similar jurisdictions overseas • Reforms have not changed our functions – but changed the focus and the way we work

5. Since 2000 Three securities law reforms • Takeovers Code 2001 • Securities Markets & Institution Bill 2002 • Regulatory role for exchanges • Continuous disclosure by listed companies • Commission empowered to bring civil actions for insider trading • Securities Legislation Bill – passed 2006

6. Securities Legislation Bill • Passed October 2006 • Comes into force 2007 • Changes to • Insider trading law • Substantial security holder disclosure • New law on market manipulation • New disclosure for investment advisers & brokers

7. Insider trading • Focuses on the threat to market integrity • “information insider” – anyone who has inside information • May not trade or advise others to trade • Exemptions for market-efficient behaviours • Civil penalties • Criminal prosecution for knowingly breaking the law

8. Insider trading • Exceptions and defences include • Fixed trading plan • Trading required by law • Underwriting agreements • Agents acting on instructions • Certain takeover activity • Trading where information is protected by Chinese walls

9. Insider trading • Old “safe harbour” gone • Directors & employees can still hold shares but do not have broad immunity from the law • Defence from liability if they have a fixed trading plan

10. Substantial security holders • Changes to how a substantial security holding is calculated • Disclosure only applies to listed securities • Beefed up enforcement by the Commission • Electronic disclosure on a new form

11. Market manipulation • New law which prohibits • making false or misleading statements or spreading falseinformation that is likely to induce someone to trade or which might affect the share price • creating a false or misleading appearance of securities trading e.g. matching buy and sell orders

12. Investment advisers & brokers Mandatory disclosure must be made • before advice is given to a member of the public or investment money is received • in a written disclosure statement • without the client having to ask Criminal liability for disclosure or ads that are misleading

13. Investment advisers • Anyone who • in their business • gives recommendations, guidance or opinion • on buying or selling securities • to members of the public • Exceptions – journalists, issuers

14. Illegal offers of securities • Advisers & brokers must not recommend illegal offers of securities or receive investment money for illegal offers • A breach is a criminal offence if the adviser or broker knew or ought to have known that the offer was illegal

15. Education campaign • Visit www.newsecuritieslaw.govt.nz

16. Next reforms Government is working on • Regulation of financial intermediaries • Review of financial products & providers

17. Commission’s powers • Enhanced ability to enforce the law by investigation, making orders, taking civil proceedings in the High Court • Enforceable undertakings • New ability to • seek pecuniary penalties • seek compensation for losses by investors • make management banning orders • make prohibition, corrective or disclosure orders

18. Other powers The Commission has always had powers to • Ban false or misleading offer documents & advertisements for securities • Grant exemptions subject to conditions which ensure investors get the information they need to make an informed decision

19. Globalisation • Capital markets are global • Companies raise capital & investors place money across national borders • Reality for New Zealand – to attract investment our regulatory regime must be internationally credible

20. 2004 FSAP • IMF & World Bank review of New Zealand’s financial regulatory system • Took account of reforms underway • New Zealand found to be largely compliant, but … • … big gap was regulation of financial intermediaries – now being addressed

21. IOSCO • International Organisation of Securities Commissions • Members regulate 90%+ of world’s securities markets • Global standard setter for securities regulation • Promotes consistent high standards • Identifies regulatory issues & finds solutions

22. Australia • Commission works closely with ASIC • Governments committed to business law coordination • Mutual recognition of securities offers – a world first • Benefits to business & to investors

23. In summary • Reforms have clarified our regulatory framework in recent years • Enforcement of securities law more effective • Focus is still a well-informed market & high standards of behaviour • Remaining shortcomings are being addressed

24. In summary • Trans-Tasman recognition of securities offerings a world first • Benefits of effective regulation • Issuers willing to improve their financial reporting • Our review of NZX’s regulatory role found it was performing well • Reforms underway will complete the regulatory framework

25. www.seccom.govt.nz John Holland Member