24 July 2003 Media Statement

Strengthened securities trading law

Commerce Minister Lianne Dalziel today announced proposals to strengthen New Zealand’s securities trading law.

“The government wants to promote confidence and participation in New Zealand’s securities markets to ensure that businesses can access the capital they need to grow. This involves strengthening the regulatory framework to encourage investment and enhance market performance,” Lianne Dalziel said.

“The first two stages of the government’s programme to strengthen our securities law were completed with the implementation of the Takeovers Code in July 2001 and legislation arising out of the Securities Markets and Institutions Bill came into force on 1 December 2002.

“The next phase, the Securities Trading Law Review, has been designed to increase the effectiveness and efficiency of law relating to the trading of securities and futures on registered securities exchanges and authorised futures exchanges,” Lianne Dalziel said.

In particular the government is introducing:

- A new insider-trading regime.
A number of problems have been identified with the current insider-trading regime in the Securities Markets Act 1988. The new regime will focus on preventing the negative market impact of using inside information (the market efficiency rationale) rather than focussing on breaching fiduciary duty, as with the current regime. The new regime will cover a wider range of behaviours that is widely acknowledged as being insider trading. The regime will contain some exceptions to ensure that certain types of behaviour, which are necessary for market efficiency, are still allowed to occur. This includes, among others, exceptions for research and analysis, takeovers, underwriters, Chinese walls and transactions where the counter-party to the transaction knows of the inside information.

- More prohibitions on market manipulation.
Including a general ban on misleading or deceptive conduct relating to securities and more specific bans on misleading or deceptive statements and the creation of a false or misleading appearance as to the supply of, or demand for, or the price or value of a security.

These prohibitions will form a comprehensive and effective regime against market manipulation that has sufficient flexibility to deal with any new forms of manipulation that may appear.

- Amendments to the law relating to investment advisers.
This is to improve the disclosure regime, make the illegal offers of securities an offence, strengthen the enforcement of investment adviser law, include sufficient flexibility to deal with special circumstances and reduce compliance costs and increase certainty. These changes will significantly strengthen investment adviser law and enforcement.

- Tougher penalties and remedies for breaching securities trading law.
This includes, among other things, introducing criminal and civil penalties and making the remedies available for breaches of the Securities Act and Securities Markets Act consistent across the board. The reforms also ensure that the Commission has an enforcement role in all breaches of securities law.

- Minor improvements to the Substantial Security Holder regime
This involves a number of minor improvements to the regime.

- Improvements to the application of securities trading law
This improves the way the law applies to certain financial products and entities.

“Ministry of Economic Development officials are now drafting a Securities Trading Law Reform Bill. Targeted consultation will be carried out on the draft Bill later this year before it is introduced to Parliament,” Lianne Dalziel said.

In making the announcement, the Minister also released Cabinet papers relating to these decisions. These can be viewed online:
http://www.med.govt.nz/buslt/bus_pol/bus_law/securities/index.html

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