Introduction
Reform of Securities Law
1. The Government has identified as one of its key objectives promoting confidence in the New Zealand market. This objective involves increasing the certainty for market participants in relation to the integrity of the market and the mechanisms for implementing the law. A number of factors can influence the level of confidence both domestic and international investors have in the New Zealand market. The regulatory framework is one of these factors.
2. The Government is in the process of implementing a number of reforms designed to improve confidence in the market. This discussion document is part of the broad programme of reforms aimed at strengthening the regulatory framework for securities markets in order to encourage investment and enhance the performance of New Zealand markets.
3. The Government's securities law reform programme includes:
- The introduction of the Takeovers Code;
- The Securities Markets and Institutions Bill ("the SMIB"); and
- A review of securities trading law.
4. The first part of this law reform package has been completed with the introduction of the Takeovers Code 2001.
5. The second part of the law reform programme is near completion with the Securities Markets and Institutions Bill reported back to the House of Representatives by the Finance and Expenditure Select Committee in June 2002. This Bill contains reforms designed to improve the enforcement, prevention and detection of insider trading in New Zealand. In addition, the Bill contains reforms designed to ensure that the Securities Commission and Takeovers Panel have sufficient powers to adequately enforce the law, and will provide a Securities Commission capable of enforcing insider trading, continuous disclosure and potentially market manipulation law. The Bill provides greater supervision of securities exchanges and implements a mechanism for mutual or unilateral recognition of overseas offering documents.
Review of Securities Trading Law
6. The third part of the programme was commenced with the release of three discussion documents in May 2002 which focus on improving securities trading law. The topics of these documents include:
- A review which considers whether more comprehensive market manipulation law should be implemented in New Zealand;
- A review of which financial products and entities should be covered by New Zealand securities trading law and what improvements could be made to penalties and remedies; and
- A first principles review of insider trading law.
7. The closing date for submissions on these three documents was 30 August 2002. The overall goal in the release of those three discussion documents is to seek the views of the public and market participants on how to minimise market abuse in New Zealand and improve confidence in our market for both New Zealand and international investors.
Problem Definition: Review of Substantial Security Holder Disclosure
8. The substantial security holder disclosure regime which is found in Part II of the Securities Amendment Act 1988 has been in force for 13 years. Since the time of its inception a number of problems have been identified with the regime.
9. Submissions from the public in response to a Securities Commission discussion document on the regime, released in 1994, indicated that there were some concerns with the disclosure regime. These included, among other things, concerns about the way in which the regime deals with different classes and types of securities, the form of the notices that had to be given, and whether or not the regime applied to collective investment schemes. There is also anecdotal evidence that suggests that there may be other concerns with the effectiveness of the regime (e.g. that disclosure under the regime is not being made immediately).
10. The review of securities trading law and the Securities Markets and Institutions Bill will make significant amendments to the Securities Amendment Act 1988.1 As the rest of the Act is under review this provides an appropriate opportunity to review the substantial security holder regime in order to resolve any problems identified with the effectiveness of the regime and to enable a consistent approach to be taken, where advisable, across all areas of securities trading law.
11. In addition, as the regime has been in force for some time, it is useful to evaluate whether there could be a reduction in the compliance costs involved in providing disclosure, and to seek comment from the public as to whether any other improvements could be made to the regime.
12. In view of the Memorandum of Understanding on Business Law Co-ordination between New Zealand and Australia and the advantages of co-ordinating New Zealand and Australian securities law (i.e. - minimising the costs for substantial security holders in having to comply with two different sets of criteria), the Ministry has given particular attention to Australian law when considering the issues in this paper.
Framework for Submissions
13. When answering the questions raised in this discussion document, we request that submitters bear in mind and, where appropriate, reflect in their answers the following considerations:
- What are the benefits of the proposal?
- Does the proposal impose any additional compliance costs or reduce compliance costs?
- If it does impose additional compliance costs who will have to bear these costs?
- What is the estimated compliance cost?
- Are there any longer term implications of the compliance costs involved?
- What steps could be taken to minimise compliance costs in relation to the proposal?
- Are there any other costs involved that are not compliance costs borne by market participants?
- Do the benefits of the proposal outweigh any of the costs involved, or vice versa, and why?
- Are there any other options that could better achieve the objective?
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