Wednesday, 24 October 2001 – 6.30pm
New Zealand Stock Exchange AGM, Hauraki Ballroom, Sky City Casino, Auckland.
The government came into office with a policy plank of improving confidence in the sharemarket. Our focus then was the
introduction of a takeovers code and insider trading reforms, as well as strengthening the institutions that enforce
securities market law.
The reform package I will outline now builds on this focus, but also goes further. In particular, it creates a new
co-regulatory framework for securities exchanges.
This framework means that exchanges will perform the direct daily supervision of the market, with the statutory
regulator – the Securities Commission – broadly overseeing the market. This involves the exchange and the Commission
cooperating to provide a comprehensive co-regulatory framework of market supervision.
The drivers of this are the market itself. The NZSE wants to put in place a legal framework that would allow its members
to vote to demutualise. There is a preference by market participants in New Zealand and overseas for a regulatory regime
that has regard to international practice and that gives them confidence in the integrity of the market.
New Zealand is a small market in a global capital market. While we recognise the virtues of “homegrown” regulation, in
the area of capital markets, it is even more important that we acknowledge that there are costs in being different.
Let me now outline the reforms, and when they are likely to come into effect.
Update on the NZSE Restructuring Bill
The Bill was recently reported back from the Finance and Expenditure Select Committee. It has now had its second reading
in the House.
A number of changes were made in the course of the select committee’s consideration of the Bill. The key changes were:
The addition of a process of approval by the Governor General for the exchange’s listing rules, with the Governor
General also having the power to disallow changes to the listing rules.
This includes a public interest test, i.e. rules and changes will be approved unless “it is not in the public interest
to do so”.
While the rules are made by stock exchanges themselves, public confidence in the market will be ensured through the
knowledge that they are subject to a public interest test.
A mechanism was included giving the Governor General the ability to impose an ownership threshold on the exchange.
This would include a power to enable the threshold to be exceeded if it is in the public interest to do so.
This provides sufficient flexibility on the level at which the threshold level is set and exemptions from that level,
with public interest considerations taken into account.
In the course of the select committee’s consideration it was agreed that the new regulatory measures applying to the
NZSE should apply to all securities exchanges.
It was also agreed that the government should consider greater oversight of exchanges by the Securities Commission. The
package of changes is designed to introduce a system of co-regulation that will align New Zealand regulation more
closely with Australia in this area. It also makes New Zealand law more consistent with IOSCO principles and objectives.
The Government’s Current Work Programme
There is an extensive business law reform programme underway, including significant reforms to securities markets.
A change which has already been implemented is the introduction of the Takeovers Code, which came into effect on 1 July
The government announced earlier this year decisions to improve the prevention, detection and enforcement of insider
trading in New Zealand.
These decisions included:
Prevention: The implementation of a statutory continuous disclosure regime for listed issuers and a requirement that
directors be required to disclose share dealings at the time that they occur.
These measures were designed to act as a deterrent to improper trading on the market, counter the distortion of the
market through rumours and enable investors to make informed investment decisions.
The proposal is to introduce a disclosure test based on Australian provisions.
Detection: Statutory obligations will be placed on stock exchanges operating in New Zealand to provide information of
breaches of securities law to the Securities Commission.
Placing these obligations on the exchanges provides them with an incentive to inform the Commission if they believe a
contravention of the law is likely or occurring.
It also provides a signal to the market that clear lines of accountability and obligations exist between the two
parties regarding the passage of information.
Enforcement: The Securities Commission will be given a role as a public civil enforcement agency for insider trading
and continuous disclosure.
Giving the Commission this role acts as a deterrent to insider trading activity and continuous disclosure breaches.
Further, unlike a private individual, the Commission would not be dissuaded by the time or cost involved in taking an
action and so would be more likely to take proceedings where it was in the public benefit to do so.
The government hopes to introduce legislation making these changes to Parliament by the end of this year, with an
enactment date of the middle of 2002.
We have also reviewed the functions of the Takeovers Panel and Securities Commission. This has resulted in proposals to
enable these bodies to carry out the enforcement of securities law more efficiently and effectively.
The key change proposed out of the review is increased investigation powers for the Securities Commission in relation
to secondary market activity. However, the package of changes signals a fundamental shift in the Commission’s functions,
from a general monitoring agency to an investigatory and enforcement body.
This change will align the Commission’s powers more closely with those of ASIC in Australia and other equivalent
Legislation making changes to the functions of the regulatory bodies will be included in the same Bill as the insider
trading prevention, detection and enforcement measures.
The Bill will also include provisions applying the regulatory proposals in the NZSE Bill to all exchanges. This couldn’t
be done in the NZSE Bill because it is a private Bill.
Finally, the Bill will include a framework to allow for the implementation of arrangements for the mutual recognition of
securities offering requirements between New Zealand and other countries. Such agreements could significantly reduce
costs for issuers offering into other countries. This proposal is consistent with the spirit of the CER partnership and
was at the initiation of the Australian government.
The government is also currently undertaking a fundamental, “first principles” review of New Zealand’s insider trading
legislation. The review will also consider the possible implementation of market manipulation law, what entities and
financial products our securities law should apply to and whether criminal penalties should be imposed for breaches of
our securities law. Three discussion documents will be released on these issues within the next few months.
The ASX Proposed Rule Change
The current work programme described above takes into account the obvious advantages of coordinating New Zealand and
Australian securities law.
The framework for this coordination is set out in the Memorandum of Understanding (MOU) on Coordination of Business Law
The reforms currently in progress put in place a legal framework in New Zealand to enable the growth of the trans-Tasman
capital market, as intended under the MOU.
The framework will be based on co-regulation between the government, through the Securities Commission, and the NZSE,
and will include effective monitoring and enforcement arrangements.
In relation to the proposed ASX rule change, we do not consider that what the ASX is proposing is consistent with the
objectives of CER. However, we must remember that the ASX is a private organisation that develops its own rules. My
officials and the Chair of the Securities Commission have now met with the ASX and ASIC and have had discussions with
the Australian Treasury. While the Australian government has a disallowance power over stock ASX rules, the threshold
for a disallowance is high. However, my Australian counterpart, Senator Hockey, has invited me to make a submission, and
I will be doing that.
As a first option, we would prefer that the rule change not proceed. However, at the very least, we will want to reduce
as far as possible the transaction/compliance costs associated with New Zealand firms having full listing on both
The government will also be encouraging NZSE and ASX to come together, as front line regulators in a harmonised
regulatory system, to cooperate on future rule development.
I appreciate the close working relationship between the NZSE and government, and look forward to working constructively
with you to promote the interests of New Zealand businesses on both sides of the Tasman