Statement of Feasible Options (Regulatory and/or Non-Regulatory) That May Constitute Viable Means for Achieving the Desired Objective(s)
Status Quo
Overseas issuers of securities must comply with the substantive requirements of securities legislation in the host jurisdiction, including any requirements to prepare and lodge investment statements and prospectuses, before such issuers may offer securities to the public. Section 5(5) of the Securities Act 1978 ("the Act") in New Zealand currently provides that the Securities Commission may exempt a person, class of persons or class of transactions from some of the requirements of the Act. There are two general exemptions at present that are salient to Australian issuers. If the Australian issuer falls within one of the two general exemption notices it would not have to comply with the substantive requirements of the Act. The exemptions allow Australian issuers to use an Australian prospectus for an offer of equity or debt securities in New Zealand. The issuer, however, would still be required to provide an investment statement that complies with New Zealand's regulatory requirements and to comply with all other regulatory requirements, as set out in part 2 of the Securities Act.
New Zealand issuers similarly may be exempt from some of the Australian regulatory requirements. The Australian Securities and Investments Commission (ASIC) may exempt some class of persons from some of the requirements in the Corporations Act 2001 (Cth). For example, ASIC Class Order (00/177) provides some relief to issuers with prospectuses registered in New Zealand from the prohibition on offering a security beyond the date of expiry on the Australian prospectus.
It should be noted that the substantive legal requirements for the offerings of securities are quite extensive and are not covered in any great detail here. The status quo is not preferred as it does not meet the public policy objectives.
Regulatory Options
Mutual Recognition through the Disapplication of Domestic Law
One option to reduce costs would involve the disapplication of the law of the host country in favour of the home jurisdiction's law in respect to offers of securities made by issuers from the home jurisdiction. These offers would be regulated solely by the law of the home country and the law of the host country would have no force. This model would mean that it would be difficult for investors in the host jurisdiction to access dispute resolution processes in claims against issuers from the home jurisdiction, as these investors would need to seek relief from courts in the home country or through alternative disputes resolution processes available in the home country. This option is not preferred.
Mutual Recognition through the Incorporation of Foreign Law
Under this second option, the host jurisdiction would incorporate the law of the home jurisdiction within its domestic regulatory framework (which would only apply to conduct in the host country by entities offering securities from the home jurisdiction). It is likely that the host country would incorporate the law of the home jurisdiction either `word for word', or by reference to law of the home country at a particular date. The practical problem with this model is that the host country would have to amend its law or regulations to reflect changes in the home country's law. Such a process can be resource intensive and can lead to gaps in the mutual recognition regime where there is a lag between changes to the law in the home and host countries. This option is therefore not preferred.
Mutual Recognition for Securities Offerings through Entry and Ongoing Requirements (Preferred Option)
This option would allow an issuer offering securities or managed investment scheme interests to the public, to extend an offer that is being lawfully made in one country, to investors in the other country using the same offer documents and offer structure. The issuer would not be required to comply with most of the substantive requirements of the host jurisdiction's domestic fundraising laws. Instead, issuers who wish to operate under the proposed regime will have to comply with a number of entry and ongoing requirements agreed between the two countries, and prescribed in the host jurisdiction's law.
- The offer must be a "regulated offer" in the home jurisdiction, that is the offer must be subject to the home jurisdiction's regulatory regime;
- The offer for securities may only be an offer for shares, debt securities, options to acquire securities, equitable interests in securities and participatory securities, excluding life insurance, superannuation products and any other derivatives not listed.
- The offeror must file a notice with the home and host jurisdiction regulators stating that it proposes to make an offer under the regime. This notice will include specified information, such as the name of the offeror, the securities being offered, an address for service in the host jurisdiction and confirmation that the offeror submits to the jurisdiction of the host country's courts; and
- The offeror must provide the host jurisdiction regulator with a number of other documents, such as the home jurisdiction offer documents.
An offer made by an issuer from the home country under the regime in the host jurisdiction will be required to comply with the home country's securities law. The host country's law will also apply to offers made under the regime by imposing a specific set of requirements, including an ongoing requirement to comply with the relevant laws of the home jurisdiction. The key ongoing requirements of the regime would include:
- The "home country compliance requirement" - the issuer must comply with the requirements of its home jurisdiction securities laws in connection with the offer to investors in the host jurisdiction. The home jurisdiction will apply its securities laws to offers made under the regime to investors in the host jurisdiction.
- The offer must remain a regulated offer in the home jurisdiction.
- The offer must be open to acceptance by persons in the home jurisdiction at all times when the offer is open for acceptance by persons in the host jurisdiction.
- Offers to investors in the host jurisdiction must be accompanied by a prescribed warning statement that (among other things) domestic securities law requirements do not apply to the offer, and that the offer is subject to the securities laws of the other jurisdiction.
Failure to comply with the ongoing requirements would result in a breach of the host jurisdiction's laws; the consequences of this would be specified in the law of the host jurisdiction, including criminal sanctions, civil liability and/or stop orders issued by the host regulator.
The home jurisdiction regulator will have primary responsibility for supervising a cross-border offer. It will be able to exercise its powers of its own motion, at the request of the host regulator, or at the request of a person in the host jurisdiction. The host jurisdiction will be able to regulate to provide for its regulator to have certain powers in respect of offers made under the mutual recognition regime if the entry requirements are not satisfied, or the ongoing requirements are not complied with.
The Treaty for the Mutual Recognition of Securities Offerings records both Australia and New Zealand's agreement to the implementation of a regulatory regime along the lines of the preferred option. It will come into force when both Australia and New Zealand have notified the other country that the respective domestic implementation of the regime has been completed. The treaty is to be reviewed five years from the date of entry into force to make any necessary amendments. The treaty may also be terminated by both Australia and New Zealand at any time, so long as appropriate notice is given to the other state.
Sections 74 and 78 in Part 5 of the Securities Act 1978 provide authority for the New Zealand government to implement a Mutual Recognition regime in the terms outlined above.
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