Appendix – Technical changes to the Securities Regulations
Body of Regulations
Regulation 2(1)
1. It is proposed to remove duplicated definitions
It is proposed that the definitions in Regulation 2 that duplicate definitions in section 2 of the Act be revoked. These definitions are: "associated persons", "Commission", "company", "contributory mortgage", "debt security", "equity security", "interest in a superannuation scheme", "issuer", "life insurance company", "life insurance policy", "manager", "participatory security", "promoter", "superannuation scheme", "superannuation trustee", "trust deed", "unit", "unit trust", and "unit trustee".
Removal of the duplicated definitions will avoid unnecessary repetition and confusion.
2. It is proposed that the definition of the term "holding company" be revoked.
This definition is obsolete as it is no longer used in the Regulations.
3. It is proposed that the definitions of the terms "current assets", "current liabilities", "fixed assets", and "non-current liability" be revoked.
There is no need to define these terms in the Regulations, as they are defined in GAAP.
4. It is proposed that the term "accounting period" be defined by reference to the Financial Reporting Act 1993.
This proposal will ensure that an issuer's accounting period for the purposes of the Regulations is aligned with the period for which GAAP financial statements are drawn up.
5. It is proposed that the definitions of the terms "broadcasting", "broadcasting stations", "diffusion service", "exhibitor", "operator" and "publisher" be reviewed as may be necessary to reflect changes in technology and legislation.
These definitions do not fully reflect technology and legislative change. For instance, the definition of "operator" does not reflect the repeal of broadcasting warrants, and the definition of "diffusion service" may not appropriately apply to modern information dissemination systems.
6. It is proposed that the definition of the term "investment" be revoked.
This definition will become obsolete once references to GAAP are adopted in the Regulations.
7. It is proposed that the definition of the term "intangible assets" be revoked.
This will mean that the term will be defined in accordance with GAAP. This will ensure consistency between financial information contained in offer documents and the issuer's annual report, and that offer documents will continue to reflect GAAP as it evolves over time.
8. It is proposed that the definition of the term "immediate relative" be amended to include de facto and same sex partners.
This change is for consistency with current legislative policies in other areas.
9. It is proposed that the definition of "qualified auditor's report" be revoked.
The term "qualified auditor's report" currently has a different meaning in the Regulations than in GAAP. By revoking the definition of the term and expanding on the requirements for audit reports in Clause 8 of Schedule 1, Clauses 4 and 7 of the Schedule 2, Clause 6 of Schedule 3, Clause 16 of Schedule 3A , Clause 12 of Schedule 3B, and Clause 12 of Schedule 3C, this inconsistency is circumvented.
10. It is proposed that it be clarified that the requirements of GAAP apply to each of the "issuing group" and the "borrowing group" as defined in Regulation 2, as if it were a group as defined in GAAP.
The concept of "borrowing group" is not used in GAAP. However, it has a specific purpose in the context of the Regulations and it is necessary to retain it, at least until there is a more comprehensive review. This change will help assist issuers to comply with the financial reporting requirements of GAAP and of the Regulations, particularly Schedule 2.
11. On the assumption that the "financial statements" clauses of Schedule 2 are to be revoked, but the borrowing group concept retained, it is proposed that issuers be allowed to account for their investments in non-guaranteeing subsidiaries in accordance with their accounting policy for investments outside the group. It is proposed that, as a consequence, the prohibition on the use of equity accounting in the financial statements of the borrowing group be removed.
12. It is proposed that the equity accounting issues defer to GAAP as we propose to revoke the financial reporting prescription in the Regulations.
13. It is proposed that the Regulations defer to GAAP and not require a distinction between unrealised and realised gains and losses.
14. It is proposed that Regulations defer to GAAP in the matter of the materiality criterion (for the purposes of financial statements only).
Proposals 11, 12, 13, and 14 are to ensure that the financial reporting requirements of the Regulations are as consistent as possible with GAAP.
Regulation 2(2)
15. It is proposed that the circumstances in which a body corporate is associated with another body corporate be defined by reference to GAAP for financial reporting purposes.
This will ensure that financial reporting requirements are consistent with GAAP where appropriate.
Regulation 2(3)
16. It is proposed that the circumstances in which a body corporate is related to another body corporate be defined by reference to GAAP for financial reporting purposes.
This will ensure that financial reporting requirements are consistent with GAAP where appropriate.
Regulation 5(2)
17. It is proposed that Regulation 5(2) be amended to require disclosure of any relationship between the valuer and the issuer, or the valuer and either any property which is the subject of a valuation for the purposes of a transaction involving the issuer, or any person associated with the property.
This will more effectively implement the intention of the provision, by requiring disclosure of further information relevant for an investor's evaluation of a valuation report.
Regulation 7A(4)
18. It is proposed that Regulation 7A(4) be amended to permit cross-referencing of addresses (but not the corresponding names of individuals or companies) within the prescribed information, or to a directory of addresses elsewhere in the investment statement.
This will allow for less unnecessary repetition within an investment statement, which should assist both the issuer and the investor.
New Regulation 7B
19. It is proposed that a new Regulation 7B be inserted to provide that nothing in this Part of the Regulations limits the provisions of Parts II and III of the Regulations, which relate to the content of advertisements.
This will make it clear that investment statements are subject to the advertisement provisions in the securities regulations.
Regulation 9
20. It is proposed that Regulation 9 be amended to provide that an advertisement must not be inconsistent with any registered prospectus, investment statement, or disclosure statement relating to the same offer.
This will rectify an anomaly in Regulation 9 (i.e. the failure to refer to the investment statement), and clarify the important requirement that all offer documents relating to the same offer should be consistent with each other.
Regulation 11
21. It is proposed that it be clarified that Regulation 11 applies to third party assurances of withdrawal or redemption prices for unit trusts.
Regulation 11 sets out restrictions on statements about guarantees in advertisements. When Regulation 11 was first made, unit trusts were not subject to the Regulations. This change will clarify that Regulation 11 does apply to third party assurances of withdrawal or redemption prices for unit trusts.
Regulation 12
22. It is proposed that the application of Regulation 12 be clarified by adding the words "or unit trust or life insurance company or superannuation scheme" after the words "issuing group or borrowing group" in each place that those words appear.
Regulation 12 sets out restrictions on statements about assets and advertisements. When Regulation 12 was first made, unit trusts, life insurance companies, and superannuation schemes were not subject to the Regulations. This change will clarify the application of Regulation 12 to those classes of securities.
23. It is also proposed that Regulation 12(1)(c) be amended to refer to interim financial statements that appear in a registered prospectus or a certificate provided under section 37A(1A) in addition to the most recent audited consolidated financial statements.
Regulation 12 currently restricts the ability of issuers to communicate in an investment statement information in half-yearly financial statements which is already published in a registered prospectus or which appears in a section 37A(1A) certificate. This restriction does not appear necessary and this change removes it.
Regulation 13
24. It is proposed that references to the Companies Act 1955 in Regulation 13 be revoked.
These references are obsolete.
Regulation 14
25. It is proposed that Regulation 14(2) be amended to refer to all kinds of securities.
This Regulation prescribes particular statements as to whether debt or participatory securities are secured or unsecured. However, there does not appear to be any reason why the provision is restricted to these types of securities. The proposal will extend its application to all types of securities.
Regulation 17
26. It is proposed that Regulation 17(2) be amended to allow for the certificate required by this Regulation to be signed by two directors or by their respective agents authorised in writing. This change should apply to investment statements as well as advertisements more generally.
Regulation 17(2) sets out who must sign a certificate in respect of an advertisement before it can be distributed. The proposal will provide for some flexibility when directors are unavailable to sign the certificate required by this Regulation, although the directors will still be liable. This conforms with the procedure for signing prospectuses prescribed in Section 41 of the Securities Act.
27. It is proposed that Regulation 17(3)(a)(i) be amended to allow for contact information to be provided without restricting the medium or method of communication, provided that at least one non-electronic method is included.
Regulation 17(3)(a)(i) sets out the content restrictions of an advertisement that does not require a signed certificate from the director/s before it is distributed. This proposal will ensure the Regulation is technologically neutral, but will require a non-electronic contact point to ensure that no investor is disadvantaged.
28. It is proposed that it be clarified that Regulation 17(3) only applies where all of the information specified in Regulation 17(3)(a) is contained in the advertisement in question.
This will clarify the circumstances in which an advertisement will require a signed directors' certificate. Some users of the Regulations have expressed doubt about this in the past.
29. It is proposed that Regulation 17(6) be amended to the effect that a publisher, operator or exhibitor is liable only where they distribute an advertisement knowing or having reasonable grounds to believe that a certificate that complies with Regulation 17(2) has not been completed.
Regulation 17(6) imposes liability on publishers, broadcasters, or exhibitors in relation to an advertisement where there is no signed certificate from the directors that complies with the relevant provisions before the advertisement has been distributed. The proposal makes the obligations of publishers, broadcasters, and exhibitors less onerous in this regard, although they will still be liable if they know or have reasonable grounds to believe that the directors have not completed the required certificate.
Regulation 20
30. It is proposed that Regulation 20 be amended by adding the words "or imply" after the word "state".
Regulation 20 provides that "No registered prospectus or advertisement shall state that investment in the securities to which it relates is safe or free from risk". Regulation 20 only prohibits statements that an advertisement is "safe" or "free from risk", and not statements that imply safety or freedom from risk. Adding the words "imply" will more effectively implement the intention of this provision.
Proposed new Regulation 20A
31. It is proposed that a new Regulation 20A be inserted, which provides that no registered prospectus or advertisement shall state or imply that the advertisement, or prospectus, or the offer, or the securities have been in any way approved or endorsed by the Securities Commission or the Registrar of Companies.
Occasionally such statements or implications appear in offer documents. They are untrue and highly misleading if not deceptive, and should be expressly prohibited by regulation.
Regulation 21
32. It is proposed that the scope of Regulation 21 should be extended by deleting the references to "interest" and replacing them with "returns". It should be clear that "returns", for the purposes of this Regulation, include earnings but not capital.
Regulation 21 is to be extended to apply to returns generally, rather than interest only, in order to assist investors to compare the returns advertised by different issuers for different products. Lack of comparability of the bases of calculation of returns, or their disclosure more generally, is often a major difficulty for investors.
Regulation 22
33. It is proposed that Regulation 22, which refers to descriptions of "mortgage debentures" be revoked.
This Regulation is obsolete.
Regulation 23
34. It is proposed that Regulation 23 be amended:
- to apply to secondary market trading mechanisms generally, provided that the identity and structure of the market is properly disclosed;
- by replacing the references to the New Zealand Stock Exchange with references to stock exchanges or other securities trading mechanisms generally;.
- by revoking the prescriptive requirements of Regulation 23(2) and replacing them with a requirement that any statement referring to the matters set out in Regulation 23(2) is approved by the exchange or other market in question.
Regulation 23 sets out restrictions on statements about listing of securities on the New Zealand Stock Exchange. This proposal will provide greater flexibility in statements about exchange listings and extend its application to cover secondary markets generally.
Regulation 27
35. It is proposed that Regulation 27 be revoked.
This Regulation refers to Section 67(3) of the Act, which is now repealed. The Regulation is therefore obsolete.
Regulation 28
36. It is proposed that Regulations 28(1) and 28(2) be revoked.
These clauses of the Regulation contain transitional provisions that are obsolete.
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