Securities Legislation Bill Government Bill Application · · Explanatory note General policy statement The Securities Legislation Bill (the Bill) is designed to ensure confi- dence in, and promote the efficiency of, New Zealand’s capital markets by increasing the effectiveness of securities, securities trading, and takeovers laws. This Bill is an omnibus Bill making amendments to the Securities Act 1978, the Securities Markets Act 1988, the Takeovers Act 1993, and the Takeovers Code in force under the Takeovers Act 1993, with related amendments to other enactments. It is intended that this Bill be divided into the following 3 separate Bills at the committee of the whole House stage: a Securities Amendment Bill, a Securities Markets Amendment Bill, and a Takeovers Legislation Amendment Bill. The principal matters addressed in the Bill are as follows. The Bill addresses a number of second tier application issues to ensure that securities and takeovers laws apply to entities and securities market participants that the public would expect to be regulated. For example, the Bill— defines the territorial scope of investment adviser law to adviser or broker services or advertisements received or given in New Zealand, while allowing for appropriate exemptions or exceptions; and removes the $20 million threshold requirement from the defi- nition of specified company in the Takeovers Act 1993 to 234—1 Explanatory note Securities Legislation 2 give greater certainty about whether a takeover is governed by the Takeovers Code. Substantial security holders’ disclosure The Bill simplifies the current substantial security holders’ disclosure regime by requiring disclosure of relevant interests by class and in respect of listed voting securities only. This will ensure that the market is given clear, consistent, and easy to understand disclosure of relevant information, and greater confidence that all necessary disclosures are being made. The Securities Commission is also granted the power to require disclosure of a person’s relevant interests after having regard to the purpose of the substantial security holders’ disclosure regime, which focuses on persons who are or may at any time be entitled to control or influence significant voting rights in a public issuer. The updated regime ensures that investors and public issuers can identify substantial security holders and, therefore, make informed investment decisions. It also reduces the likelihood of market deception, thereby increasing confidence in the market. While there will be some transitional costs in substantial security holders becoming familiar with the new system, costs will decrease in the medium term as the requirements are easier to understand and the calculation of one’s holding simpler. Changes to the legislation will be well publicised with a delay planned before amendments and accompanying regulations take effect. Market manipulation The Bill introduces comprehensive prohibitions against practices involving the creation of a false impression of securities trading activity, or price movement, or market information. Market manipulation prohibitions reduce the risk that investors (in particular, minority investors) may receive misleading or poor quality information about the value of businesses and the value of the shares they hold. The introduction of a strong market manipulation regulatory framework consistent with international standards will encourage investment in New Zealand’s securities markets. 3 Securities Legislation Explanatory note Insider trading Current insider trading law, based on the insider’s relationship with the public issuer, is complex, difficult to enforce, and leaves opportunities to avoid the prohibition. In short, the present regime is ineffective—no person has been found liable for insider trading under the Act. Yet studies demonstrate that countries with an effective and enforced insider trading regime can benefit from up to 5% additional market liquidity. Accordingly, the Bill proposes strengthening the law relating to insider trading by adopting a regime similar to Australia’s—focused on the threat that insider trading poses to market integrity and confidence in the market, rather than a breach of duty owed to a company. The broad prohibition applies to any person who has material information that is not generally available to the public and who trades, or encourages or procures another to trade. Exceptions for legitimate, market efficient activity—such as research and analysis —are recognised. Market misconduct is further deterred through the introduction of criminal remedies, as well as civil pecuniary penalties and compensation orders for breaches of the regime, and by creating an aiding and abetting offence for people who knowingly assist in contraventions of insider trading law. An effective and enforced insider trading regime will promote confi- dence and encourage investment in New Zealand’s securities markets. Investment adviser, investment broker law The current 2-tier mandatory/request disclosure under the Investment Advisers (Disclosure) Act 1996 is ineffective in providing investors with all the information they need to make informed investment decisions. The Bill improves the quality of adviser and broker disclosure, as well as business practices across the advisory industry, by making all disclosures mandatory and requiring that additional disclosures be made prior to the giving of investment advice or the receipt of investment money or property. The Securities Commission is given a public enforcement role for investment adviser and broker law. Improved enforcement will increase the level of consumer confidence in advisers and brokers, an important factor in the efficient and effective operation of New Zealand’s capital markets. Explanatory note Securities Legislation 4 In addition, new offences are created prohibiting advisers from recommending illegal offers or advertising in a misleading or deceptive way. These deterrent measures may increase consumer confidence. Increased compliance costs for advisers arising out of the requirement to provide additional disclosure are balanced against the bene- fits to the reputation of the industry as a whole from measures that will strengthen the integrity of the advisory community. Penalties and remedies A comprehensive overhaul in the Bill of the size and range of penalties and remedies available under securities and takeovers law aims to deter illegal behaviour and encourage compliance. The Bill provides the Securities Commission and Takeovers Panel with a comprehensive and flexible range of penalties and remedies to apply to various contraventions of the law. It also ensures that their respective powers to summon and receive evidence are clear, particularly in respect of bodies corporate. Creating a consistent and principled approach to applying penalties and remedies across all securities laws, with clear and easy to understand consequences for contraventions of those laws, will strengthen the regulatory framework for securities laws and promote confidence in the New Zealand market. Clause by clause analysis Clause 1 relates to the Title. Clause 2 relates to the commencement. The amendments concerning substantial security holders’ disclosure (clauses 30 and 31 of this Bill) and investment advisers and brokers (new Part 4 of the Securities Markets Act 1988 inserted by clause 35) will come into force on dates to be appointed by Order in Council, to allow time for the making of the regulations that will be necessary to implement these provisions. The rest of this Act comes into force on 1 November 2005. Part 1 Amendments to Securities Acts This Part is divided into amendments to the Securities Act 1978 (the Securities Act) and amendments to the Securities Markets Act 1988 (the Securities Markets Act). Explanatory note The main changes contained in this subpart are— · · · · Clause 3 provides that the Securities Act is called ‘‘the principal Act’’ in this subpart. Clause 4 inserts new sections 55A to 55G, which amend the civil remedies available for a breach of the Securities Act. The key effects of the amendments are that— · · New section 55A gives an overview of the civil remedies now to be available under the Securities Act. These are pecuniary penalty orders (and the related declarations of civil liability) and compensation. New section 55A determines that those remedies will be available if there is a civil liability event. New section 55B defines civil liability events as the distribution of an advertisement or registered prospectus that includes an untrue statement or a breach of the contributory mortgage regulations. (These are the events for which compensation is presently available under the Securities Act.) 5 Securities Legislation Subpart 1—Amendments to Securities Act 1978 amendments to remedies under the Securities Act: amendments to investigation and enforcement powers: amendments to regulation empowering provisions (to enable financial reporting standards to be incorporated in regulations): a transitional validation provision for small employer superannuation schemes relating to the Securities Amendment Act 2004. Amendments to remedies courts may now award a civil pecuniary penalty order against a person liable for misstatements in advertisements or registered prospectuses, experts liable for those misstatements, or for persons liable for breaches of the contributory mortgage regulations. The maximum amount of the pecuniary penalty is $5 million: courts may award a declaration of civil liability against persons found to be liable in pecuniary penalty order proceedings for any of those matters. A declaration of civil liability removes the need for other persons bringing compensation proceedings to reprove the civil liability in those proceedings. 6 New sections 55C to 55F relate to the making of pecuniary penalty orders (and related declarations of civil liability). The key points are that— · · · · · The compensation remedy (now in new section 55G) merges those previously in section 56 for misstatements in advertisements and registered prospectuses, in section 57 for expert misstatements, and in section 57A for breaches of contributory mortgage regulations. However, it is unchanged in substance from the previous compensation remedies. · · Sections 56 to 57A are amended by clauses 5 to 7 so that they now state the persons who are liable for a civil liability event as follows: section 56 states who may be liable for misstatements in registered prospectuses and advertisements: section 57 states which experts may be liable for misstatements by experts in registered prospectuses and advertisements: Explanatory note Securities Legislation only the Securities Commission (the Commission) may apply for a pecuniary penalty order: the Court must make a declaration of civil liability under new section 55C if the Commission applies for a pecuniary penalty order and the Court is satisfied there is a civil liability event: the purpose of a declaration of civil liability is to enable a person bringing compensation proceedings to rely on the declaration and not have to re-prove the civil liability event, and so a declaration is made conclusive evidence of the matters that must be stated in it under new section 55E. The declaration does not state who is liable for that civil liability event as this may differ under sections 56 to 57A according to whether the remedy sought is a pecuniary penalty order or compensation (new section 55D): the Court may make a pecuniary penalty order against a person under new section 55C if it is satisfied that there is a civil liability event, that the person is liable for a pecuniary penalty order for that civil liability event under sections 56 to 57A, and that the civil liability event is sufficiently serious under that section (for example, is likely to materially damage the integrity or reputation of any of New Zealand’s securities markets): the maximum amount of a pecuniary penalty is $5 million, and matters to be taken into account in determining the amount are set out in new section 55F. 7 Securities Legislation Explanatory note · section 57A states who may be liable for breaches of contributory mortgage regulations. The persons who are liable are, in each case, the same as those previously liable only for compensation for these matters. However, the defences have been amended so that they apply appropriately to pecuniary penalty orders. As the defences differ according to what remedy is sought, whether or not a person is liable in a particular case may depend on what remedy is sought. Clause 8 inserts new sections 57B to 57E dealing with the interrelationship of the civil liability remedies and other general matters. New section 57B provides that a person may be liable for both a pecuniary penalty order and compensation for the same conduct, but that whether a remedy has already been imposed and, if so, the effect of that remedy must be taken into account in imposing another remedy. However, a person may only be liable for 1 pecuniary penalty order for the same conduct (new section 57C). New section 57D states expressly that the pecuniary penalty order, declaration of contravention, and compensation proceedings are civil proceedings and the usual rules of Court and rules of evidence and procedure (including standard of proof) for civil proceedings apply. New section 57E provides that the time limit for an application for a pecuniary penalty order is 2 years after the date on which the matter giving rise to the civil liability event (which enables the making of the order) was discovered or ought reasonably to have been discovered. The usual time limit applies to applications for compensation (generally 6 years under the Limitation Act 1950). Clause 10 amends section 59A to clarify that the Commission’s summons powers extend to individual and corporate persons alike. Clause 11 inserts new sections 60A to 60E, which provide for the banning of persons from being a director or promoter, or taking part in the management of, incorporated or unincorporated bodies (called management bans). Powers to ban these persons from being a director or promoter of, or managing, companies are currently in sections 382 and 383 of the Companies Act 1993. The new provisions are based on the Companies Act 1993 provisions but amended for the Securities Act context. Under the new provisions— · the Court may make a management banning order for a conviction of an offence or for a pecuniary penalty order made under the Securities Act, for persistent contraventions of the 8 · · · · In addition, a person is automatically banned from being a director or promoter of, or being concerned or taking part in the management of, any body for 5 years if he or she has been convicted of an offence or if a pecuniary penalty order has been made under the Securities Act (new section 60E). It is an offence to contravene an automatic ban with maximum penalties of 3 years’ imprisonment and a $100,000 fine for individuals and a $300,000 fine for bodies corporate. New section 60F extends references in other enactments to management bans under the Companies Act 1993 to the new management bans under the Securities Act. Clause 11 also inserts new section 60G, which provides that a person cannot be liable for both a pecuniary penalty and a fine for an offence under the Securities Act for the same conduct. Explanatory note Securities Legislation Securities Act while a director (or persistent failures to take all reasonable steps to secure compliance by the body for which the person was a director), or if the person has been prohibited from undertaking management activities in an overseas jurisdiction in connection with a contravention of a law relating to the offering of securities (new section 60A(1)): the persons entitled to apply for the order are the Commission, the Registrar of Companies, the bodies for which the person was a director at relevant times, the liquidator of those bodies, and security holders and creditors of those bodies (new section 60A(2)): the order may prohibit or restrict the person from being a director or promoter of, or being concerned or taking part in the management of, any body for up to 10 years (new section 60B): it is an offence to contravene the court order with maximum penalties of 3 years’ imprisonment and a $100,000 fine for individuals and a $300,000 fine for bodies corporate (new section 60C): only 1 management banning order may be made under these powers in the Securities Act, the Companies Act 1993, or the Securities Markets Act (in which new powers are also inserted, see the analysis on new sections 43F to 43J of that Act), although proceedings may be brought under any or all of those Acts (new section 60D). Explanatory note Clause 13 substitutes three new sections for existing sections 69B and 69C. The new provisions reorder the contents of the replaced sections, and clarify who may receive evidence on the Commission’s behalf and how that evidence may be given. Clause 14 amends section 69D. The thrust of the amendments is to make plain that the Commission’s summons powers apply to both natural and corporate persons. Clause 15 amends the restrictions on the use of self-incriminating statements in section 69U of the Securities Act. The effects of the amendments are that— · · · · Clause 16 inserts new sections 70AA to 70AAF into the Securities Act in order to clarify that regulations made under the Securities Act may— · · 9 Securities Legislation Amendments to investigation and enforcement powers the only testimony now excluded is a self-incriminating statement made orally by a person summoned (previously it excluded all testimony and whether the testimony was written or oral): that testimony is made inadmissible in proceedings under the Securities Act or Securities Markets Act for a pecuniary penalty order (as well as criminal proceedings): that testimony can, however, be admitted in evidence if the person gives evidence inconsistent with the statement (not only in proceedings concerning the falsity of the testimony, as was the case previously). Accordingly, a person would need to remain silent for the protection to apply: not answering questions or providing information or doing so in a way that is deceptive or misleading can also be used in evidence in proceedings for an offence under section 59A(1) (which relates to obstructing the exercise of powers). Amendments to regulation empowering provisions require any person, class of persons, information, or class of information to comply with generally accepted accounting practice (as defined in the Financial Reporting Act 1993); and incorporate by reference approved financial reporting standards. Approved financial reporting standards are approved by the Accounting Standards Review Board under the Financial Reporting Act 1993. 10 The 2003 Supplement to the 2001 edition of the Legislation Advisory Committee Guidelines contains a number of principles in relation to incorporation by reference. In accordance with these principles, the new sections require material incorporated by reference to be made available for inspection, for purchase at reasonable prices, and, if not prevented by any legal impediment, on the Internet. New sections 70AA to 70AAF depart from the principles of the Legislation Advisory Committee Guidelines concerning incorporation by reference as the circumstances require, including as follows: · · · Transitional validation relating to Securities Amendment Act 2004 Clause 17 contains a transitional validation for small employer superannuation schemes, needed as a consequence of amendments effected by the Securities Amendment Act 2004. That Act replaced the previous exemption for small employer superannuation schemes with a new exemption for employer superannuation schemes on 15 April 2004. The new exemption did not exempt all the small schemes that would previously have been exempted, but these schemes were given a new exemption by the Securities Commission in the Securities Act (Employer Superannuation Schemes) Exemption Notice 2004 on 23 July 2004. Clause 17 in effect continues the Securities Act’s pre-15 April 2004 exemption from 15 April 2004 until 23 October 2004, filling the gap between the repeal of the previous statutory exemption and the commencement of the new exemption notice (and continuing until 23 October 2004 to cover the transition period under the new exemption notice). For that period Explanatory note Securities Legislation subsequent amendments to approved financial reporting standards that have been incorporated by reference are to have legal effect without themselves being incorporated by reference because of the nature of the standards and the manner in which they are approved; and the standard requirements regarding public access to material that has been incorporated by reference have been amended as a copy of an approved financial reporting standard that has been incorporated by reference may not be able to be placed on the Internet because of copyright issues; and no provision requiring consultation before an approved financial reporting standard is incorporated by reference is included because section 70(3) of the Securities Act already requires the Commission to consult before the Commission recommends that a regulation be made. Explanatory note the investment statements for those small schemes are permitted to have complied with the pre-15 April 2004 requirements. Clause 18 contains transitional provisions. The main changes contained in this subpart are— · · · · · Clause 19 provides that the Securities Markets Act is called ‘‘the principal Act’’ in this subpart. Clause 20 replaces sections 2 to 6 on interpretation (and repeals section 6A, which is now dealt with in new Part 1). Most of the existing definitions are merely re-enacted with modern drafting, minor clarifications, and without redundant provisions (for example, references to the Companies Act 1955 are deleted). New definitions are inserted for the new dealing misconduct provisions, for the revised substantial security holders’ disclosure provisions, and for the new provisions on investment advisers and brokers. The key changes in substance to the definitions in new section 2 are as follows: · 11 Securities Legislation Subpart 2—Amendments to Securities Markets Act 1988 insertion of new dealing misconduct provisions: amendments to provisions on disclosures of interests of substantial security holders in public issuers: replacement of the Investment Advisers (Disclosure) Act 1996 with a new Part 4 of the Securities Markets Act regulating investment advisers and brokers: revision of enforcement and remedies provisions (shifted to a new Part 5 of the Securities Markets Act) to make them more consistent and comprehensive: consequential and ‘‘tidying up’’ amendments to interpretation provisions, exemption and regulation empowering provisions, and other provisions of the Securities Markets Act. Amendments to interpretation the current definition of buy is replaced with the term acquire and sell is replaced with dispose of. Acquire now expressly includes subscription and dispose includes allotting, withdrawing from, or terminating. These terms are used throughout the Securities Markets Act (but note that new Part 1 does not apply to issues of new securities under the definition of securities in new section 7): 12 · Existing definitions of material information and generally available to the market (currently in sections 19E and 19F) are shifted to new sections 3 and 4. In addition, a new definition of material information in relation to a futures contract is inserted (new section 3A): it mirrors the definition of material information in new section 3, with references to the ‘‘value’’ of a futures contract in place of references to the ‘‘price or value’’ of listed securities of a public issuer. The existing definition of relevant interest and its exceptions (currently in sections 5 and 6) are re-enacted in new sections 5, 5A, 5B, and 6. The key changes in substance are as follows: · · · · · Explanatory note Securities Legislation new definitions are inserted for new Part 4. These are largely reproduced from definitions in the Investment Advisers (Disclosure) Act 1996, in some cases with minor changes. it is expressly provided that the registered holder of a security has a relevant interest (new section 5(1)(a)): it is clarified that a power to cast merely 1 of many votes is not, in itself, a relevant interest power (new section 5(2)): the definition is amended in new section 5A(1) so that a person has a relevant interest power or control if they have, or may at any time have, that power or control as a result of a practice (and so, not only as a result of a meeting of minds under a trust, agreement, arrangement, or understanding). Practice includes both market practice and persons’ practices in dealing with each other: the definition is also extended so that a person (A) has the relevant interests that another person (B) has if A and B have an agreement, arrangement, or understanding to act in concert in relation to a relevant interest power or control (new section 5B(1)(e)). This extension means that the relevant interest test will allow attribution of interests to either party to an agreement to act in concert on these matters (not only the attribution of interests of a person to another person that controls the first person): the requirements for the Commission to designate persons in order for certain exceptions from the relevant interest definition to apply are removed. Instead all persons within the exceptions are automatically covered unless the Commission designates them as not exempt under new section 48C (see the analysis on that section). This new power to designate persons Explanatory note · · · · as not exempt now applies to all the exceptions in new section 6: the sharebroker exception from the relevant interest definition is expanded in new section 6(1)(a) to cover brokers for all securities on registered exchanges’ markets acting in the ordinary course of business: the requirements for corporate representative resolutions and for proxies to have been deposited 48 hours before the relevant meeting for these exceptions to apply have been removed under new section 6(1)(c) and (d): the current exception for trustee corporations and nominee companies in section 6(1)(e) has been shifted to new section 31 because it relates only to disclosures of substantial holdings and because there are conditions for the exception under new section 32 (see the analysis on those sections): it is expressly stated that a person does not have a relevant interest merely because the person is a director of a body corporate and the body corporate has a relevant interest in the security (new section 6(1)(f)). Insertion of new dealing misconduct provisions Clause 21 repeals Part I, and inserts new Part 1 with the heading ‘‘Dealing misconduct’’. New Part 1 contains the rules (which are new) relating to insider conduct (insider trading) and market manipulation. New section 7 sets out the interpretation of the terms encourage, security, and trade. The terms encourage and trade are used only in subpart 1 of Part 1. The definition of trade makes it clear that the prohibition of insider conduct involving the trade of securities is directed at trading for profit—it does not extend to acquiring or disposing of securities by inheritance or gift. The definition of security (which must be read with the definition in new section 2(1)) in effect limits the prohibition on dealing misconduct to misconduct in relation to securities that have already been allotted (ie, it does not apply to the issue of new shares which is already covered by the Securities Act) and that are listed on a registered exchange’s market or approved for trading on an authorised futures exchange. New section 8 states the fundamental prohibition on insider conduct, which comprises the 3 key prohibitions in new sections 8C, 8D, and 13 Securities Legislation Insider conduct prohibited Explanatory note Securities Legislation 14 8E, namely, an information insider must not trade, an information insider must not disclose inside information, and an information insider must not advise or encourage trading. New section 8A states who is an information insider of a public issuer. The emphasis is on the information that the insider possesses, rather than the position that the insider occupies. An information insider is anybody with the requisite knowledge—the insider may be a person with no connection with the public issuer in question, or may be the public issuer itself. New section 8B defines inside information to mean the information in respect of which a person is an information insider. A person cannot be liable under the Bill for dealing with material information relating to a public issuer unless that person has the requisite knowledge to qualify as an information insider in respect of that information. New section 8C prohibits an information insider from trading in the securities of the public issuer in question. New section 8D prohibits an information insider from disclosing inside information to another person if the information insider knows or ought reasonably to know that the other person will or is likely to act in certain ways—by trading the relevant securities, or by holding them, or by advising or encouraging a third person to trade the securities. New section 8E prohibits an information insider from giving advice or encouragement for trading or holding securities in the public issuer in question. New section 8F makes insider conduct a criminal offence if the information insider contravenes any of the prohibitions in new sections 8C, 8D, and 8E with actual knowledge (the maximum penalties are 5 years’ imprisonment and a $300,000 fine for an individual and a $1,000,000 fine for a body corporate). The knowledge component varies. In the case of a new section 8C or new section 8E contravention, the prosecution must prove actual knowledge by the defendant that the inside information in question is material information and that it is not generally available to the market. For a new section 8D contravention, the prosecution must prove, in addition, actual information by the defendant of 1 of the matters set out in new section 8D(a) to (c). 15 Securities Legislation Explanatory note When prohibition on insider conduct does not apply New section 9 provides that the new section 8C prohibition (information insider must not trade) does not apply to trading in securities that is required by an enactment. New section 9A provides that the new section 8D prohibition (information insider must not disclose inside information) does not apply to disclosure that is required by an enactment. New section 9B sets out underwriting exceptions to each of the new sections 8C, 8D, and 8E prohibitions. The effect is that the trading prohibition (new section 8C) does not apply to the acquisition of securities under an underwriting or sub-underwriting agreement, the disclosure prohibition (new section 8D) does not apply to disclosure for the sole purpose of negotiating an underwriting or sub-underwriting agreement, and the advice prohibition (new section 8E) does not apply to advice or encouragement for the sole purpose of persuading a person to enter into an underwriting or sub-underwriting agreement. New section 9C provides that a person (A) does not contravene the trading prohibition (new section 8C) merely because A knows of A’s own previous or proposed transactions or agreements in relation to the securities. The exception extends to an officer or agent trading on behalf of A who has knowledge of A’s previous or proposed transactions or agreements. New section 9D creates an exception from the trading prohibition (new section 8C) in the case of an agent who trades on behalf of, and on the specific instruction of, another person without disclosing insider information to that person and without advising or encouraging that person to issue the instruction to trade. New section 9E states that the prohibitions in new sections 8C to 8E do not apply to the acquisition of securities resulting from a takeover offer by an information insider. The exception is limited to an acquisition resulting from a takeover offer made under a takeover code that is in force under the Takeovers Act 1993. New section 9F creates an exception from the trading prohibition (new section 8C) for the redemption of units in a unit trust. The exception is dependent on the way in which the redemption price is calculated—for the exception to apply, the redemption price must be calculated by reference to the underlying value of the assets. Explanatory note Securities Legislation 16 New section 9G provides an exception from the trading prohibition (new section 8C) for trading by the Reserve Bank of New Zealand in securities issued by the Bank or by the Crown. Affirmative defences New sections 10 to 10D create affirmative defences in relation to the trading prohibition (new section 8C), the disclosure prohibition (new section 8D), and the advice prohibition (new section 8E). For an affirmative defence to prevail, the defendant must prove the defence on a balance of probabilities. New section 10 states that absence of knowledge of trading is a defence to the trading prohibition. What must be proved to establish the defence is that the person who traded did not know, and could not reasonably be expected to know, that he or she was in fact trading. New section 10A creates an independent research and analysis defence to a charge of contravening the trading prohibition (new section 8C) or the disclosure prohibition (new section 8D). The defendant must prove that the inside information was obtained by research and analysis, and was not obtained from the public issuer. Research means planned investigation undertaken to gain new knowledge and understanding. New section 10B creates an equal information defence to a charge of contravening the trading prohibition (new section 8C) or the disclosure prohibition (new section 8D) if securities have been traded as a result of the defendant’s disclosure. The defendant must prove that the opposite party to the transaction knew, or ought reasonably to have known, the same inside information as the defendant before entering into the transaction. New section 10C creates a defence to a charge of contravening the trading provision (new section 8C) if the trading occurred under a fixed trading plan or by exercise of fixed price delivery options. For the defence to apply, the defendant must prove that the defendant entered into the plan or acquired the options, as the case may be, before the defendant obtained the inside information and without any intent to evade the trading prohibition. New section 10D creates a Chinese wall defence to a charge of contravening the trading prohibition, the disclosure prohibition, or the advice prohibition. 17 Securities Legislation Explanatory note Market manipulation New sections 11 to 11D prohibit the practice of market manipulation and make it a criminal offence. New section 11 broadly prohibits the making or dissemination of a false or misleading statement or information that is likely to affect trading in securities. More particularly, the prohibition is dependent upon 4 elements: the statement or information is false or misleading; it is materially false and misleading; the person who makes or disseminates it knows or ought reasonably to know that it is materially false or misleading; and it is likely to induce a person to trade or likely to affect the trading price. New section 11A provides that a person who contravenes new section 11 commits an offence if the person has actual knowledge that the statement or information is false in a material respect or is materially misleading. The maximum penalties are 5 years’ imprisonment and a $300,000 fine for an individual and a $1,000,000 fine for a body corporate. New section 11B broadly prohibits anything that has the effect or is likely to have the effect of misrepresenting the market for securities, ie, misrepresenting the extent of active trading in the securities of a public issuer, the supply of those securities, the demand for them, their trading price, or their value. For the prohibition to apply, 2 elements must be shown: first, the effect or likely effect of creating or causing the creation of a materially false or misleading appearance as to the market for the securities; and second, the requirement that the person whose act or omission is in question knows or ought reasonably to know that the act or omission will or is likely to have that effect. New section 11C provides that a person is presumed to have contravened new section 11B in 2 situations. The first is where the person is a party to trading in securities of a public issuer from which no change in beneficial ownership results. This captures the situation where securities are ‘‘churned’’ to give the appearance of active trading. However, the presumption does not apply if the trading occurred for a legitimate reason. An example is the transfer of securities by a retiring trustee to the incoming trustee. Second, the presumption also applies in the case of corresponding trades, ie A offers to trade, and A or, to A’s knowledge, A’s associate makes a corresponding offer to trade which substantially matches the opening offer in number and price of securities. The presumption applies Explanatory note Securities Legislation 18 because the trade is apparently contrived. However, the presumption does not apply if it is proved that there is a legitimate reason for the trade. New section 11D provides that a person who contravenes new section 11B commits an offence. The maximum penalties are 5 years’ imprisonment and a $300,000 fine for an individual and a $1,000,000 fine for a body corporate. General dealing misconduct prohibition New section 12 defines certain terms used in new subpart 2: dealings in securities, engaging in conduct, and security. The effect of these definitions is to extend the prohibition in new subpart 2 to dealing misconduct more widely than the market manipulation prohibitions in new sections 11 and 11B. New section 13 provides for a general dealing misconduct prohibition. This approximates, in the case of dealing in securities, to the prohibition in section 9 of the Fair Trading Act 1986 of misleading or deceptive conduct. New section 13 prohibits a person engaging in conduct in relation to any dealings in securities that is materially misleading or deceptive or likely to materially mislead or deceive. New section 13A provides a ‘‘reasonable excuse’’ defence which is borrowed from section 44(1) of the Fair Trading Act 1986. The options for a reasonable excuse defence are: reasonable mistake, reasonable reliance on another, or external intervention beyond the defendant’s control. New section 13B (a defendant who invokes a third party as a reasonable excuse must give notice of that person’s identity) is taken from section 44(2) of the Fair Trading Act 1986. New sections 14 to 17 exclude the application variously of new section 11 or new section 13 to conduct to the extent that it is dealt with elsewhere, ie, in the Takeovers Act 1993 or a takeovers code in force under that Act, by the Companies Act 1993 (in relation to share buy-backs), in the Securities Act (in relation to offers of securities to the public), or in the provisions of this Bill relating to investment advisers or brokers. New section 18 defines the territorial scope of new section 13 (the general dealing misconduct prohibition). That prohibition applies to conduct in New Zealand, and to conduct outside New Zealand by a person connected to New Zealand (resident, incorporated, carrying on business) if that conduct relates to dealings in securities that take place, or partly take place, within New Zealand. 19 Securities Legislation Explanatory note New section 19 excludes the Fair Trading Act 1986 from applying to conduct to the extent that it falls within new sections 11 to 11D and 13 of the Bill, so that there is no duplication between the Bill and the Fair Trading Act. Amendments to disclosure of relevant interests by directors and officers of public issuers Clause 22 inserts a new purpose for subpart 2 of Part 2, which relates to disclosure of relevant interests by directors and officers of public issuers. The purpose (which is particularly relevant to the power under new section 48C for the Commission to designate persons as not exempt under new section 6) is to promote good corporate governance, and to deter, and to assist in the monitoring of, insider conduct and market manipulation, by— · ensuring that information about directors’ and officers’ trading activities in public issuers is available to participants in New Zealand’s securities markets; and · enabling the dates of trades to be checked against the dates at which material information became generally available to the market. Clause 23 amends section 19Z to enable public issuers to have more flexibility as to where they keep the interests register under subpart 2 of Part 2. They can now keep the register at any place in New Zealand for which notice to the Registrar of Companies is given in accordance with the provision. However, the default place (if no notice is given) is the registered office of the public issuer. Clause 24 amends section 19ZA to remove references to ‘‘he or she’’, so that the powers to obtain copies of the interests register clearly apply to all persons, not only individuals. Clause 25 amends section 19ZF so that it is an offence to fail, without reasonable excuse, to comply with the obligations to keep an interests register in New Zealand under section 19Z(1) and (2). The maximum penalty for the register offences in section 19ZF is increased in new Part 5 from a $5,000 fine to a $10,000 fine. Amendments to disclosure of interests of substantial security holders in public issuers Clause 26 replaces subpart 3 of Part 2 with a new subpart requiring the disclosure of interests of substantial security holders in public issuers. Much of the subpart is re-enacted with only minor changes Explanatory note Securities Legislation 20 and in modern drafting style. The key changes in substance are as follows: · · · the event disclosure obligations (those triggered by the happening of a specific event) apply now to listing voting securities only, not to all voting securities: the event disclosure obligations are triggered if a person has a relevant interest in listed voting securities comprising 5% of a class of listed voting securities of a public issuer, rather than 5% of all voting securities of the public issuer: the Commission has a new power to require disclosure of relevant interests in securities (whether voting securities or not, whether listed or not, and whether issued or yet to be issued) and disclosure of powers to acquire relevant interests in securities of those kinds. New section 20 contains the purpose of the subpart, which is to promote an informed market, and to deter insider conduct, market manipulation, and secret dealings in potential takeover bids, by ensuring that participants in New Zealand’s securities markets have access to information concerning the identity and trading activities of persons who are, or may at any time be, entitled to control or influence the exercise of significant voting rights in a public issuer. This purpose is particularly relevant to the Commission’s new power to require additional disclosure under new section 34 and to its power to designate persons as not exempt under new section 48C. New section 21 determines that a person is a substantial security holder if they have a substantial holding. A substantial holding is a relevant interest in listed voting securities that comprise 5% or more of a class of listed voting securities of the public issuer (listed voting securities includes listed non-voting securities that are convertible into voting securities, but not those convertible securities that are not themselves listed). A person may have more than 1 substantial holding in a public issuer (because they have a substantial holding in more than 1 class of listed voting securities), and must disclose under the subpart in relation to each substantial holding. This section also determines how to calculate the percentage of securities in a class in which a person has a relevant interest. The event disclosure obligations (that is, those that apply automatically on the happening of specified events) previously in sections 20 to 22 are now as follows: 21 Securities Legislation Explanatory note · · · · a person must disclose under new section 22 if they begin to have a substantial holding (or, if they already have one, begin to have another substantial holding): a substantial security holder must disclose any movement of 1% or more in the substantial holding under new section 23: a substantial security holder must disclose any change in the nature of any relevant interest in the substantial holding under new section 24: a person must disclose under new section 25 if they cease to have a substantial holding (or cease to have any substantial holding, if they have more than 1). In each case, disclosure must be given in accordance with new sections 26 and 27 as soon as the person knows, or ought to know, of the relevant event triggering the disclosure obligation. New section 26 requires the disclosure to be given to the public issuer and relevant registered exchange and to contain the further matters required to be disclosed by regulations. New section 27 requires the disclosure to comply with regulations which govern the form and method of disclosure. A public issuer must, on request by the person giving it the disclosure, give an acknowledgment of the disclosure (new section 28). New section 29 entitles a person to rely on documents distributed to security holders by the public issuer or on the relevant registered exchange’s website, whichever is most recent, in determining what is the total number of securities of a public issuer in a particular class (unless they know the document or website number is not correct). · · New sections 30 to 33 contain exemptions and variations of the disclosure obligations: new section 30 continues the exemption currently in section 23(2) and (3) for persons who have their substantial holding only because they have a relevant interest in another person who has a substantial holding, if that other person is required to comply, and does comply, with the relevant disclosure obligation: new section 31 provides an exemption for trustee corporations and nominee companies acting in the ordinary course of business (currently exempted from the definition of relevant interest under section 6) if they opt into the exception by written notice to the Commission. However, the Commission may designate persons as not exempt under this section (under new section 48C, see the analysis on that section). Explanatory note Securities Legislation 22 · Conditions for this exemption are stated in new section 32, and failure to comply with those conditions without a reasonable excuse is an offence (with a maximum penalty of a $10,000 fine): new section 33 continues the exemption currently in section 23(1), which extends the time for compliance with the disclosure obligations for trustees, executors, and administrators. New sections 34 to 35B contain required disclosure obligations (that is, disclosure obligations that apply only if the person is actively required to disclose under them). The Commission has a new power in new section 34 to require disclosure to the market of relevant interests in securities, or powers that the person has or may at any time have to acquire relevant interests in securities (whether the securities are voting securities or not, listed or not, issued or yet to be issued). That power may be used only after the Commission has had regard to the purpose of this subpart and by written notice. · · In addition, the existing powers of public issuers to require disclosure to it under sections 28 and 29 are re-enacted in new sections 35 and 35A. These powers are intended to enable the public issuer to comply with its register and publication obligations. The following substantive changes are made to the existing powers: the public issuer is no longer compelled to require disclosure if requested to do so by a substantial security holder (instead it is intended that those persons will request the Commission to use its powers, though the Commission is not obliged by statute to do so): the powers apply only to holders of listed voting securities or persons whom the public issuer believes has, or may have, a relevant interest in listed voting securities (consistent with restricting all event disclosure obligations to listed voting securities). · · New sections 35C to 35J relate to the register and publication obligations under this subpart. The key points are as follows: the public issuer must keep a register of disclosures at its registered office or at any other place in New Zealand of which it gives notice to the Registrar of Companies (new section 35C): the inspection and copying rights are aligned with those applying to the interests register for disclosure of relevant interests of directors and officers (new section 35D): Explanatory note · · · · it is an offence to fail, without reasonable excuse, to comply with these register and access obligations, for which the maximum penalty is a $10,000 fine (new section 35E): the public issuer must publish information on substantial holdings to shareholders (for companies) or holders of listed voting securities (for other public issuers) under new section 35F. That information must include the identity of substantial security holders, the number and class of listed voting securities forming part of a substantial holding, and the total number in each class of listed voting securities. It is an offence for the public issuer to fail to comply with this section without reasonable excuse, for which the maximum penalty is a $10,000 fine (new section 35H): each disclosure given under this subpart must be given to a registered exchange. Under new section 35G, a registered exchange must notify its market of each disclosure as soon as practicable after receiving it and must also, soon after notifying it to the market, publish the disclosure on its website (it does not have to be published immediately on the website, which allows for the current NZSE practice of having approximately a 20 minute delay in doing so). It is an offence for the registered exchange to fail to comply with this obligation without reasonable excuse, for which the maximum penalty is a $10,000 fine (new section 35H): the public issuer is protected from liability for publications of substantial holdings or disclosures under new section 35I (the registered exchange already has protection available under existing section 47). Insertion of new Part 4 on investment advisers and brokers Clause 27 repeals section 42 as the High Court is no longer to have exclusive jurisdiction to hear proceedings under the Act. It also repeals section 41 (the regulation empowering provisions for dealings in futures contracts, which has been shifted to new section 49B) and section 43 (which provides for the Court to use evidence not otherwise admissible, and has been shifted to new section 43S). Clause 27 also inserts new Part 4 in the Securities Markets Act. Part 4 relates to the regulation of investment advisers and brokers. It brings across, with some substantial changes, the provisions of the Investment Advisers (Disclosure) Act 1996 (the 1996 Act), which is 23 Securities Legislation 24 consequently repealed (clause 27(2)). Those provisions have also been modernised to conform with current drafting practice. New section 41 defines, by reference to section 3 of the Securities Act, when investment advice is given to the public or investment money or investment property is received from the public. This provision is not new—it appears as section 2(2) of the 1996 Act. New section 41A defines the meaning of security for this Part of the Bill. New sections 41B to 41G set out the requirements of disclosure by investment advisers. In a departure from the 1996 Act, the Bill sets out separately the requirements of disclosure by investment brokers —they appear in new sections 41H to 41J. New section 41B states the primary disclosure obligation for investment advisers—an investment adviser must not give investment advice to a member of the public unless the adviser has first made disclosure in accordance with new sections 41C to 41G, and any requirements specified by regulation. The distinction in the 1996 Act between initial (mandatory) disclosure and request disclosure has been dropped in the Bill. New sections 41C to 41F set out what an investment adviser must disclose. The comparable provisions in the 1996 Act are sections 3 and 4. The Bill divides disclosure by an investment adviser into the categories of— · · · · Explanatory note Securities Legislation Disclosure by investment advisers experience, qualifications, professional standing, etc (new section 41C): criminal convictions and other adverse events that reflect on competence and integrity: bankruptcy, prohibition from managing a company or business, adverse court result in litigation as a party in the adviser’s professional or business capacity, and expulsion from a professional body (new section 41D): fees to be charged to the person receiving the advice (new section 41E): other interests and relationships (new section 41F). The test of an interest or relationship that must be disclosed is whether a reasonable person would regard it as reasonably likely to influence the adviser in giving the advice. Among other interests, the adviser must disclose relevant remuneration. 25 Securities Legislation Explanatory note · This is defined in new section 41F(4) and is designed to catch direct or indirect benefits (it need not be monetary) paid to the adviser (but not by the investor) in connection with the giving of the advice or a transaction resulting from that advice: types of securities about which the adviser advises (new section 41G). If the adviser advises on the securities of a particular issuer or issuers only, the adviser must state this and disclose the name of each of the issuers. Disclosure by investment brokers New section 41H contains the core disclosure obligation for investment brokers. An investment broker must not receive investment money or investment property from a member of the public unless the broker has first made disclosure in accordance with new sections 41I and 41J and any requirements specified by regulation. New section 41I (investment broker must disclose certain criminal convictions, etc) mirrors, for investment brokers, new section 41D. New section 41J requires an investment broker to disclose the broker’s procedures for dealing with investment money or investment property. Other requirements relating to disclosure New section 41K requires disclosure to be made in a disclosure statement and sets out the requirements for the disclosure statement. New section 41L states that disclosure must not be deceptive, misleading, or confusing at the time it is made. Information may be disclosed in addition to the information that must be disclosed (new section 41M(1)), and that additional information must also not be deceptive, misleading, or confusing (new section 41M(2)). New section 41N deals with the situation where a disclosure statement that has been provided to a client has become out of date by the time the investment advice is given or the investment money or property received. The rule is that the adviser or broker who relies on an out of date disclosure document does not comply with the disclosure obligations under the Bill. New section 41N(2) sets out when a disclosure statement is out of date. The starting point is that, since the date of the statement, there has been a material change in any matter that must be disclosed in the statement. However, this itself is insufficient to make the disclosure statement out of date for the purposes of new section 41N. In addition, a reasonable person Explanatory note Securities Legislation 26 must, broadly, regard the change as one that would affect the investment decision. New section 41O requires that an investment adviser’s or broker’s advertisement advertising that person’s services must state that a disclosure statement is available free on request. New section 41P states that an advice advertisement, a broker advertisement, or a product advertisement (these terms are defined in new section 2(1)) must not be deceptive, misleading, or confusing. Offences New sections 41Q to 41S create offences for contraventions of the provisions in the Bill requiring disclosure and prohibiting disclosure or an advertisement that is deceptive, misleading, or confusing. New section 41T prohibits a recommendation by an investment adviser to, or receipt of investment money by an investment broker from, a member of the public in relation to an illegal offer of securities. New section 41T(2) makes it an offence to contravene that prohibition. Section 41U provides a defence of immateriality in relation to the offence provisions in new sections 41Q to 41T. For the offences relating to disclosure in new sections 41Q and 41R, the maximum penalty is a $100,000 fine for an individual and a $300,000 fine for a body corporate. For the offences in new sections 41S and 41T, the maximum penalty is a $300,000 fine and $10,000 per day in the case of a continuing offence. Territorial scope of this Part New section 41V states the territorial application of the investment advisers and brokers provisions. Those provisions apply to investment advice offered to, or an investment brokers service performed for, a person in New Zealand. It does not matter that the end result of the advice or service occurs outside New Zealand. It also does not matter where the adviser or broker is resident, incorporated, or carries on business. This means that an overseas adviser or broker must comply with the Bill if that person offers investment advice to a person in New Zealand, or performs an investment brokers service for a person in New Zealand. Investment advice is offered to a person in New Zealand if it is received by a person in New Zealand. However, that does not apply if the overseas investment adviser shows that it took all reasonable steps to ensure members of the public in New Zealand do not receive the advice. The Bill also 27 Securities Legislation Explanatory note applies in the converse situation of investment advice offered to, or an investment brokers service performed for, a person outside New Zealand, by a person who is resident, is incorporated, or carries on business in New Zealand. Miscellaneous New section 41W in effect provides that there can be no contracting out from the investment adviser and broker provisions in the Bill— those provisions have effect no matter what any agreement may say. New section 41X states that nothing in the investment adviser and broker provisions affects the liability of a person under any other law or enactment. One example is liability under the Fair Trading Act 1986 for misleading or deceptive conduct in trade (section 9)— that liability sits alongside, and is not displaced by, liability under the investment adviser and broker provisions in the Bill. Insertion of new Part 5 on enforcement and remedies Clause 27 also inserts new Part 5, which contains all enforcement powers and remedies now applicable under the Securities Markets Act (except that only penalties for offences are contained in this Part, the offences themselves are in the relevant substantive provisions). There are a number of changes to order powers so as to make them apply more comprehensively and consistently. New subpart 1 sets out core definitions, including an extended definition of contravention covering, for example, attempts to contravene (new section 42). New subpart 2 contains the Commission’s enforcement powers. These are— · prohibition orders under new sections 42B and 42C, enabling the Commission to restrain the making of statements or distributing of documents for the purpose of preventing a contravention of a market manipulation prohibition, the general dealing misconduct prohibition, an investment advisers’ or brokers’ obligation or exemption, section 36A(1) (no holding out as a securities exchange unless registered), or section 37A(1) (no holding out as a futures exchange unless authorised), or exemptions from section 36A(1) or section 37A(1): 28 · · · New sections 42H to 42J contain the process for the Commission’s orders. The Commission must, under new section 42H, give notice before making the order, give persons to whom it must give notice an opportunity to make submissions, and have regard to those submissions. The exact obligations (eg, when notice must be given and whether the person has an opportunity to be heard at a meeting of the Commission or only to make written submissions) differ according to the type of order. This process may be shortened (by giving less than 24 hours’ notice, by giving only oral notice, and by giving persons an opportunity only to make oral submissions) under new section 42I for specified orders, but in this case the Commission must include in the notice the reasons for acting urgently and otherwise comply with the usual process requirements. New section 42J requires the Commission to give notice after making orders also. New section 42K enables the Commission to make orders on terms and conditions, to vary orders in the same way as it may make them, and to revoke and suspend orders. Orders are subject to appeal only in accordance with section 69P of the Securities Act. It is an offence to fail to comply with a Commission order, with a maximum penalty of a $30,000 fine (new section 42L). However, a Explanatory note Securities Legislation corrective orders under new sections 42B and 42C enabling the Commission to direct a person in contravention of any of those same obligations to publish corrective statements: disclosure orders under new sections 42D and 42E, enabling the Commission to require disclosure, or corrective statements, if it is satisfied that a person has contravened a continuous disclosure obligation, a directors’ and officers’ disclosure obligation, a substantial security holders’ disclosure obligation, or an investment advisers’ or brokers’ disclosure obligation, or an exemption from any of those disclosure obligations: temporary investment adviser and broker banning orders under new sections 42F and 42G, enabling the Commission to ban a person from investment adviser or broker activities for up to 14 days if it is satisfied that the person has persistently contravened the general dealing misconduct prohibition, new Part 4 containing the investment adviser or broker obligations, or the Securities Act, or has been prohibited in an overseas jurisdiction from carrying on substantially similar investment adviser or broker activities as those for which the ban may be imposed. Explanatory note person must not be convicted of an offence if the person proves that the contravention occurred without the person’s knowledge or without their knowledge of the order, if the contravention was immaterial, or the Court thinks the contravention ought reasonably to be excused. New subpart 3 contains the Court’s enforcement powers. These are— · · · · New subpart 4 contains the civil remedies. New section 42T provides an overview of the civil remedies available for contraventions of civil remedy provisions. Under new section 42U, the civil remedy provisions are the insider conduct prohibitions, the market manipulation prohibitions, and the general dealing misconduct prohibition in new Part 1; the continuous disclosure obligations or exemptions and the substantial security holders’ disclosure obligations or exemptions in Part 2; and the investment advisers’ or brokers’ obligations or exemptions in new Part 4. (They do not include the directors’ and officers’ disclosure obligations, which continue to be enforced through criminal liability under Part 2.) The civil remedies available are— pecuniary penalty orders (and related declarations of contravention): 29 Securities Legislation injunctions under new sections 42M to 42O preventing any contravention of a provision of the Act. These provisions remove the need for the Commission to give an undertaking as to damages for interim injunctions: corrective orders under new sections 42P and 42Q, enabling the Court to direct a person to publish corrective statements if the Court is satisfied that the person has contravened a market manipulation prohibition or the general dealing misconduct prohibition or an investment advisers’ or brokers’ obligation or exemption, or section 36A(1) (no holding out as a securities exchange unless registered), or section 37A(1) (no holding out as a futures exchange unless authorised), or an exemption from section 36A(1) or section 37A(1): disclosure orders under new sections 42R and 42S enabling the Court to require disclosure, or corrective statements, if the Court is satisfied that a person has contravened a continuous disclosure obligation, a substantial security holders’ disclosure obligation, or an investment advisers’ or brokers’ disclosure obligation, or an exemption from any of those disclosure obligations. 30 · · · compensatory orders: specific civil remedy orders under new section 42ZD: other civil remedy orders under new section 42ZF. New sections 42V to 42ZA relate to the making of pecuniary penalty orders (and related declarations of contravention). The key points are as follows: · · · · · · · they are available for contraventions of civil remedy provisions other than the general dealing misconduct prohibition and the investment advisers’ or brokers’ disclosure obligations and exemptions: only the Commission may apply for a pecuniary penalty order: the Court must make a declaration of contravention if the Commission applies for a pecuniary penalty order and the Court is satisfied that there is a contravention: the purpose of a declaration of contravention is to enable a person bringing proceedings for a compensatory order to rely on the declaration and not have to re-prove the contravention, and so a declaration is made conclusive evidence of the matters that must be stated in it under new section 42X (new section 42W): the Court may make a pecuniary penalty order under new section 42V if it is satisfied there is a contravention and the contravention is sufficiently serious under that section (for example, is likely to materially damage the integrity or reputation of any of New Zealand’s securities markets): the maximum amount of most pecuniary penalties is $1 million (new section 42Y). However, the maximum amount of a pecuniary penalty for a contravention of an insider conduct prohibition or market manipulation prohibition is the consideration for the transaction that constituted the contravention, 3 times the gain made or loss avoided by the person carrying out the conduct, or $1 million (whichever is the greater). New section 42Z sets out guidance for the Court on how to determine the gain made or loss avoided in securities transfers. In essence this is the difference between the amount paid or received by the person for securities and the value those securities would have had if the person had not contravened the prohibition: new section 42ZA also sets out considerations for the Court in determining the amount of the pecuniary penalty, including matters like the nature and extent of the contravention and the Explanatory note Securities Legislation Explanatory note likelihood, nature, and extent of damage to the integrity or reputation of any of New Zealand’s securities markets because of the contravention. New sections 42ZB and 42ZC relate to compensatory orders: · · · · · they are available for contraventions of civil remedy provisions other than the investment advisers’ or brokers’ disclosure obligations and exemptions: any person may apply for a compensatory order: the Court may make a compensatory order if satisfied that there is a contravention and that the aggrieved person has suffered, or is likely to suffer, loss or damage because of the contravention: the compensatory order may be any order the Court thinks just to compensate an aggrieved person, including monetary orders, restorative orders, and orders varying or cancelling contracts: the Court may direct that the Commission’s costs be paid from amounts recovered under a compensatory order if the Commission conducted the whole or any part of the proceedings. New sections 42ZD and 42ZE relate to the specific civil remedy order for contraventions of investment advisers’ or brokers’ disclosure obligations and exemptions (for which the pecuniary penalty orders, declarations of contravention, and compensatory orders do not apply): · · · any person who has received investment advice from the relevant adviser or paid or delivered investment money or property to the relevant broker may apply for the order: the Court may make the order if satisfied there is a contravention and that, if the adviser or broker had complied, a reasonable person in the position of the applicant would have not used the adviser or advice or would not have used the broker or paid or delivered investment money or property, or would otherwise have acted in a materially different way. This second requirement is intended to ensure that there is a material effect arising from the contravention. However, it does not matter whether or not the investment adviser or broker has previously contravened or whether the applicant has suffered any loss as a result of the contravention: the civil remedy order may order the adviser or broker to pay the applicant an amount up to a maximum of $100,000 for an 31 Securities Legislation Explanatory note Securities Legislation 32 adviser or broker who is an individual or $300,000 for an adviser or broker that is a body corporate. New sections 42ZF and 42ZG provide for other civil remedy orders: · · · · they are available for contraventions of civil remedy provisions other than the continuous disclosure obligations and exemptions and the investment advisers’ and brokers’ obligations and exemptions: any person may apply for these orders: the Court may make these orders if satisfied on reasonable grounds that a person has contravened or intends to contravene the relevant provisions: these orders may restrain the exercise of rights attaching to securities, restrain the issue of securities, restrain the acquisition or disposal of securities, direct the disposal or forfeiture of securities, or do other similar things. New sections 42ZH and 42ZI deal with the interrelationship of the civil remedy orders. New section 42ZH provides that a person may be liable for more than 1 kind of civil remedy order for the same conduct, but that whether an order has already been imposed and, if so, the effect of that order must be taken into account in imposing another order. However, a person may only be liable for 1 pecuniary penalty order for the same conduct (new section 42ZI). New section 42ZJ states expressly that proceedings under this subpart are civil proceedings and the usual rules of Court and rules of evidence and procedure (including standard of proof) for civil proceedings apply. New section 42ZK provides that the time limit for an application for a pecuniary penalty order, civil remedy order under new section 42ZD (for investment advisers or brokers), or a civil remedy order under new section 42ZF is 2 years after the date on which the matter giving rise to the contravention (which enables the making of the order) was discovered or ought reasonably to have been discovered. The usual time limit applies to applications for compensatory orders. New subpart 5 relates to the criminal remedies under the Securities Markets Act. However, most of the offences are contained with the substantive provisions in the rest of the Act, and only the penalties are listed in this subpart: · new section 43 lists the penalties for offences under new Part 1 (dealing misconduct): Explanatory note · · · · · new section 43A lists the penalties for offences under Part 2 (disclosure): new section 43B lists the penalties for offences under Part 2B (securities exchange provisions): new section 43C lists penalties for offences under Part III (futures): new section 43D lists the penalties for offences under new Part 4 (investment advisers and brokers): new section 43E lists the penalties for offences under Part 5 itself. This subpart also deals with management and investment adviser and broker bans under the Securities Markets Act. New sections 43F to 43J provide for the banning of persons from being a director or promoter of, or taking part in the management of, incorporated or unincorporated bodies (called management bans). Powers to ban these persons are currently in sections 382 and 383 of the Companies Act 1993. The new provisions are based on the Companies Act 1993 provisions but amended for the Securities Markets Act context. Under the new provisions in the Securities Markets Act,— · · · · the Court may make a management banning order for a conviction of an offence against new Part 1 or for a pecuniary penalty order for a contravention of new Part 1, for persistent contraventions of the Securities Markets Act while a director (or persistent failures to take all reasonable steps to secure compliance by the body for which the person was a director), or if the person has been prohibited from undertaking management activities in an overseas jurisdiction in connection with a contravention of a law relating to the trading of securities (new section 43F(1)): the persons entitled to apply for the order are the Commission, the Registrar of Companies, the bodies for which the person was a director at relevant times, the liquidator of those bodies, and security holders and creditors of those bodies (new section 43F(2)): the order may prohibit or restrict the person from being a director or promoter of, or being concerned or taking part in the management of, any body for up to 10 years (new section 43G): it is an offence to contravene the court order with maximum penalties of 3 years’ imprisonment and a $100,000 fine for 33 Securities Legislation 34 · · In addition, a person is automatically banned from being a director or promoter of, or being concerned or taking part in the management of, any body for 5 years if he or she has been convicted of an offence against new Part 1 or a pecuniary penalty order has been made under new Part 1 against him or her (new section 43I). It is an offence to contravene an automatic ban with maximum penalties of 3 years’ imprisonment and a $100,000 fine for individuals and a $300,000 fine for bodies corporate. New sections 43K to 43N provide for investment adviser or broker bans: · · · Explanatory note Securities Legislation individuals and a $300,000 fine for bodies corporate (new section 43H): only 1 management banning order may be made under these powers in the Securities Markets Act, the Companies Act 1993, or the Securities Act (in which new powers are also inserted, see the analysis on new sections 60A to 60D of that Act), although proceedings may be brought under any or all of those Acts (new section 43J): new section 43J also extends references in other enactments to management bans under the Companies Act 1993 to the new management bans under the Securities Markets Act. any person may apply for an investment adviser or broker banning order: the Court may make an investment adviser or broker banning order under new section 43K if it is satisfied that the person has been convicted of an offence, or a pecuniary penalty order has been made against the person, under new Part 1 (dealing misconduct), section 41S (offence of deceptive, misleading, or confusing advertising), section 41T (recommending, or receiving money for, illegal offer), or the Securities Act. In addition, the Court may make the order if the person has been convicted of a crime involving dishonesty; the person has persistently contravened the general dealing misconduct prohibition, new Part 4 containing the investment adviser or broker obligations, or the Securities Act; or the person has been prohibited in an overseas jurisdiction from carrying on substantially similar investment adviser or broker activities as those for which the ban may be imposed. the ban may prevent the person from carrying on investment adviser or broker activities for up to 10 years (new section 43L): 35 Securities Legislation Explanatory note · it is an offence to contravene the court order with maximum penalties of 3 years’ imprisonment and a $100,000 fine for individuals and a $300,000 fine for bodies corporate (new section 43M). In addition, a person is automatically banned from carrying on investment adviser or broker activities for 5 years if he or she has been convicted of an offence, or a pecuniary penalty order has been made against him or her, under new Part 1 (dealing misconduct), new section 41S (offence of deceptive, misleading, or confusing advertising), or new section 41T (recommending, or receiving money for, illegal offer), or if the person has been convicted of a crime involving dishonesty (new section 43N). It is an offence to contravene an automatic ban with maximum penalties of 3 years’ imprisonment and a $100,000 fine for individuals and a $300,000 fine for bodies corporate. New section 43O(1) requires the Court Registrar to give notice of management or investment adviser or broker banning orders to the Registrar of Companies and the Commission and to give notice of the orders in the Gazette. All the management banning provisions provide for persons to obtain leave of the Court to carry out activities despite a banning order or automatic ban. New section 43O(2) states that a person applying for leave of the Court to override a ban must give 10 days’ written notice to the Commission. · · · New sections 43P and 43Q enable the Court to make orders relating to investment brokers’ accounts: any person may apply for the orders: the Court may make the orders if an investigation, prosecution, or civil proceedings have commenced against the investment broker for a contravention of an investment brokers’ obligation: the order, in essence, may freeze the investment broker’s (or any associated person’s) accounts or take other action to preserve the interests of investment brokers’ clients and creditors. New section 43R provides that information for a summary offence may be laid within 3 years after the date of the offence. New subpart 6 contains general provisions for enforcement and remedies: 36 · · · · · · · · Amendments to exemption and regulation empowering provisions Clause 28 inserts new exemption and regulation empowering provisions. These are largely a restatement of the existing powers, shifted from elsewhere in the Act and revised with modern drafting style, but some substantive changes are made: · · Explanatory note Securities Legislation new section 43S enables the Court to receive evidence that would not otherwise be admissible (as does the existing section 43): new section 43T empowers the Court to order persons to pay the Commission’s costs in conducting proceedings if the Commission brought proceedings and the Court makes any other order against the person: new section 43U enables the Court to make orders for the purpose of securing compliance with any other orders it makes: new section 43V enables the Court to direct a person making an application for an order to give notice of the application: new section 43W provides for the Court to make orders on terms and conditions and to revoke, vary, or suspend orders on the terms it thinks fit: new section 43X lists the persons entitled to appear before the Court on applications under new Part 5. These are the applicant, the public issuer, a person who is alleged to have suffered loss or damage, the Commission, the relevant registered exchange, a person directed to be given notice of the application, and any other person with the leave of the Court: new section 43Y deals with corporate knowledge. It provides that it is presumed, in the absence of proof to the contrary, that a person knew of any matter if an employee or agent knew of that matter in that capacity: new section 43Z provides that a person cannot be liable for both a pecuniary penalty and a fine for an offence under the Securities Markets Act for the same conduct. the Commission’s exemption power in new section 48 is expanded to cover additional matters that may need exempting for substantial security holders’ disclosure obligations and to enable exemptions from investment advisers’ or brokers’ disclosure obligations: the Commission is given a new power in new section 48C to designate persons as not exempt under new section 6 (which Explanatory note · · · · · · provides exemptions from the definition of relevant interest for the purposes of the directors’ and officers’ disclosure and the substantial security holders’ disclosure) or section 31 (which is an exemption from the substantial security holders’ disclosure obligations). The designation power may be used if the Commission is satisfied that the exemption is being used for purposes of circumventing, evading, or defeating the purposes of the relevant subpart. Procedural requirements for this power are set out in new section 48D: new sections 48E to 48G now contain the regulation empowering provisions for continuous disclosure regulations, currently in sections 19Q to 19S: new section 49 contains the regulation empowering provisions for directors’ and officers’ disclosure obligations. These provisions are in existing section 49, but some changes are made. The relevant registered exchange may now determine the form or method of disclosure (rather than the regulations stating this). Classes of transactions (as well as persons, relevant interests, acquisitions, or disposals) may be exempted by the regulations, consistent with the Commission’s existing exemption power. There is a new express power to exempt persons with relevant interests in issuers from specified overseas jurisdictions from compliance with the directors’ and officers’ disclosure obligations: new section 49A contains the regulation empowering provisions for substantial security holders’ disclosure. The provisions currently in section 36 have been revised to align better with new subpart 3 and for consistency with other regulation empowering provisions for disclosure obligations: new section 49B contains the regulation empowering provisions for dealings in futures contracts, currently in section 41: new section 49C contains the regulation empowering provisions for investment advisers and brokers. These are new powers based on those currently in the Investment Advisers (Disclosure) Act 1996, but revised for the purposes of new Part 4. The changes include power to require advisers to have a minimum level of professional indemnity insurance and to undertake to have adequate professional indemnity insurance and an exemption power: new section 49D contains powers to make other regulations, including exemption powers relating to new Part 1 and the existing powers to regulate for fees and charges under the Act. 37 Securities Legislation 38 New section 49E clarifies that the breach of a term or condition of an exemption provided by regulations or by the Commission is a breach of the obligation for which the exemption applies. Clause 29 and the Schedule make related amendments to the Securities Markets Act and other enactments. Part 1 of the Schedule contains amendments to the Securities Markets Act to— · · · · Parts 2 and 3 of the Schedule contain amendments to other enactments. Clauses 30 and 31 contain transitional provisions. Under clause 30 it is clarified that a person will not have to disclose existing holdings again by virtue of the new substantial security holders’ disclosure obligations. However, persons must disclose if they are affected by the change in the application of the substantial security holders’ disclosure obligations (for example, because they have 5% of a class of listed voting securities, but not 5% of the total number of voting securities of a public issuer and so must now disclose but were not required to previously). These persons are given until 14 days after commencement of the new subpart to disclose. The main changes made by this Part are to— · · Explanatory note Securities Legislation Miscellaneous repeal provisions that have now been reproduced elsewhere (eg, shifted definitions, enforcement powers, penalties, and regulation empowering provisions): amend references to appeals of Commission decisions so they refer to the appeal right in section 69P of the Securities Act rather than generally to Part 3 of that Act: correct section cross-references to reflect their new locations: consequentially amend headings to reflect the revised structure. Part 2 Amendments to takeovers legislation amend the application of the Takeovers Act 1993 (the Takeovers Act) and the Takeovers Code: revise the enforcement powers and remedies to extend the powers of the Takeovers Panel (the Panel) to make orders and to make the remedies more consistent with those applying under the Securities Markets Act (while retaining specific features relevant to the takeovers context): 39 Securities Legislation Explanatory note · include market manipulation prohibitions applicable for the takeovers context. Amendments to Takeovers Act 1993 Clause 32 provides that the Takeovers Act is called ‘‘the principal Act’’ in this Part. Clause 33 amends the interpretation provision of the Takeovers Act. The key change is to remove the asset test from the definition of specified company, so that a company will be a specified company if it has 50 or more members or shareholders, even if it does not have $20 million of assets. In addition, for Panel and Court enforcement powers,— · · a person is considered to have contravened or not complied with the Takeovers Code if they contravene an exemption from the code; and contravention and failure to comply (which are used interchangeably in the Takeovers Act) are given extended meanings (for example, covering attempts to contravene). Clause 34 amends the object of the Act to cover the new offence in new sections 44B and 44C. Clause 35 inserts a new heading into Part 3, which will now be divided into subpart 1, for investigation and enforcement by the Panel, subpart 2, for enforcement by the Court, subpart 3, for offences, and subpart 4, for general matters. Clause 36 substitutes 3 new sections for old sections 31L and 31M. The new provisions reorder the contents of the replaced sections, and clarify who may receive evidence on the Panel’s behalf and how that evidence may be given. Clause 37 amends section 31N. The thrust of the amendments is to make plain that the Panel’s summons powers apply to both natural and corporate persons. · Clauses 38 to 40 amend the Panel’s powers to make orders for compliance with the Takeovers Code. The key changes are— the Panel may now make permanent compliance orders under section 32 as well as the restraining orders currently set out in section 33. The existing restraining orders are re-named temporary restraining orders to distinguish them from the new orders and because the restraining orders are restricted to 21 days: 40 · · · · Clause 41 repeals the heading above section 33E, and section 33E (on the jurisdiction of the Courts, which has been shifted to new section 44E) and section 34 (the Courts’ existing order power, which is replaced by the order powers in new subpart 2 of Part 3). Clause 42 inserts new subpart 2 of Part 3, relating to the Court’s enforcement powers. New section 33E provides an overview. The enforcement powers and remedies are injunctions, civil remedy orders under new section 33I, compensatory orders, and pecuniary penalty orders (and the related declarations of contravention). The Court may grant injunctions under new sections 33F to 33H preventing any contravention of the Takeovers Code (currently it could grant similar orders under section 36(1)(l)). A person may apply for an injunction if permitted by section 35. These provisions remove the need for the Panel to give an undertaking as to damages for interim injunctions. The Court may make various civil remedy orders under new sections 33I and 33J (which are largely the same as the orders currently made under section 36, with some additions and changes). The key points are as follows: · Explanatory note Securities Legislation the process for making orders under section 32 is amended so that the Panel is expressly required to give written notice of its reasons for a determination on compliance with the Takeovers Code, and to give notice of the order and its reasons for the order: the Panel is given power under section 32, if it makes any other order, to make an order extending, for a reasonable time, the period for which a takeover offer must remain open. This order is intended to address the effects that the first order may have on the takeover process: it is expressly stated in section 33 that temporary restraining orders preventing contraventions of the Takeovers Code may restrain statements or distributions of documents: the terms for permanent compliance orders are set out in new section 33AA. These orders may permanently prohibit or restrict the making of statements or distributing of documents, direct disclosure, or require the publication of corrective statements. a person permitted by section 35 may apply for a civil remedy order under these sections: Explanatory note · · New sections 33K and 33L relate to compensatory orders (which currently the Court could grant to a certain extent under section 36(1)p)). The key points are as follows: · · · · New section 33M to 33Q relate to the making of pecuniary penalty orders (currently granted under section 43) and related declarations of contravention (which are new). The key points are as follows: · · · 41 Securities Legislation the Court may make an order if satisfied on reasonable grounds that a person has contravened, is contravening, or intends to contravene the Takeovers Code: these orders may restrain the exercise of rights attaching to securities, their acquisition or disposal, require forfeiture, vary or cancel contracts in contravention, prohibit or restrict the making of statements or distributing of documents, direct disclosure, direct the publication of corrective statements, or require compliance. Accordingly they are a mixture of orders directed at preventing or remedying contraventions or ensuring compliance and orders that may be used for compensatory or punitive purposes. a person permitted by section 35 may apply for a compensatory order: the Court may make a compensatory order if satisfied that there is a contravention and that the aggrieved person has suffered, or is likely to suffer, loss or damage because of the contravention: the compensatory order may be any order the Court thinks just to compensate an aggrieved person, including monetary orders, restorative orders, and orders varying or cancelling contracts: the Court may direct that the Panel’s costs be paid from amounts recovered under a compensatory order if the Panel conducted the whole or any part of the proceedings. only the Panel may apply for a pecuniary penalty order (after complying with section 35): the Court must make a declaration of contravention if the Panel applies for a pecuniary penalty order and the Court is satisfied that there is a contravention: the purpose of a declaration of contravention is to enable a person bringing proceedings for a compensatory order to rely on the declaration and not have to re-prove the contravention, 42 · · · Clause 43 amends section 35 so that it applies to all the remedies available from the Court. The list of persons who may make applications is unchanged. As is the case currently, only the Panel (after making a section 32 determination) may apply for a pecuniary penalty order. Clause 44 repeals sections 36 (as the orders previously in that section are now in new section 33I) and 37 (as it is understood that the Court may make interim orders in any case). Clause 45 amends section 38 to require the Court to have regard to Panel determinations for all applications under new subpart 3 and to enable the Court, in making a civil remedy order under new section 33I or a compensatory order, to have regard to Panel recommendations. Clause 46 repeals section 39, which relates to orders directing disposals of securities, as the order power in new section 33I has been expanded to adequately cover these issues or they are within the discretion of the Court. Clause 47 amends the general power for the Court to revoke, vary, and suspend orders in section 40 so that it covers the new orders. Explanatory note Securities Legislation and so a declaration is made conclusive evidence of the matters that must be stated in it under new section 33O (new section 33N): the Court may make a pecuniary penalty order under new section 33M if it is satisfied there is a contravention, that the person knew or ought to have known of the conduct constituting the contravention, and that the contravention is suffi- ciently serious under that section (for example, materially prejudices the interests of offerees and other involved or affected persons): the maximum amount of a pecuniary penalty is $500,000 for an individual and $5 million for a body corporate (new section 33P): new section 33Q also sets out considerations for the Court in determining the amount of the pecuniary penalty, including matters like the nature and extent of the contravention and the likelihood, nature, and extent of damage to the integrity or reputation of any of New Zealand’s securities markets because of the contravention. 43 Securities Legislation Explanatory note Clause 48 replaces section 41. Terminology is made more consistent, but the key change is to exclude this provision from applying to pecuniary penalty orders and compensatory orders. Clause 49 amends the Court’s power under section 42 to require persons to give evidence or produce documents relating to interests in securities so that it applies to applications for the new orders. Clause 50 substitutes new sections 43 to 43C dealing with the interrelationship of the civil remedies and other general matters on new subpart 3. New section 43 provides that a person may be liable for more than 1 kind of civil remedy order for the same conduct, but that whether an order has already been imposed and, if so, the effect of that order must be taken into account in imposing another order. However, a person may only be liable for 1 pecuniary penalty order for the same conduct (new section 43A). New section 43B states expressly that proceedings under this subpart are civil proceedings and the usual rules of Court and rules of evidence and procedure (including standard of proof) for civil proceedings apply. New section 43C provides that the time limit for an application for a civil remedy order under new section 33I or a pecuniary penalty order is 2 years after the date on which the matter giving rise to the contravention (which enables the making of the order) was discovered or ought reasonably to have been discovered. The usual time limit applies to applications for the other civil remedy orders. Clause 51 inserts a new subpart 3 governing offences. The existing section 44 is re-enacted with some changes. New sections 11 and 11A, which are part of the market manipulation prohibitions created by the Bill in relation to trading in securities, are adapted in new sections 44B and 44C to apply in relation to takeovers. Clause 51 also inserts a new subpart 4 on general matters: new section 44E provides that the High Court has exclusive · jurisdiction to hear proceedings: · new section 44F empowers the Court to order persons to pay the Panel’s costs in conducting proceedings if the Panel brought proceedings and the Court makes any other order against the person: new section 44G enables the Court to direct a person making · an application for an order to give notice of the application: 44 · · · Clause 52 inserts a new Part 4 heading to reflect the new structure of the Takeovers Act. Clause 53 provides that the Takeovers Code (the Schedule to the Takeovers Code Approval Order 2000) is called ‘‘the code’’ in this Part. Clause 54 amends the code’s interpretation provisions to remove the asset test for code companies (in the same way as it is removed for specified companies, which are the same as code companies, under the Takeovers Act). It also includes a definition of engaging in conduct, consequential on the new Part 8. Clause 55 amends rule 24 of the code, dealing with the offer period, so that the offer period in the code includes the additional period included in it by a Panel order under section 32 of the Takeovers Act. Clause 56 adds new Part 8 to the code. That Part prohibits misleading or deceptive conduct in relation to takeovers. It therefore dovetails with, and mirrors, the general prohibition on misleading or deceptive conduct in relation to dealings in securities found in new section 13 of the Securities Markets Act, which does not apply to takeovers. Clause 57 replaces old references to takeovers schemes in the Companies Act 1993 and the Co-operative Companies Act 1996. Explanatory note Securities Legislation new section 44H lists the persons entitled to appear before the Court on applications under new Part 5. These are the applicant, the Panel, the registered exchange, the specified company, a person who is alleged to have suffered loss or damage, a person who was a member or security holder of the specified company at the relevant time, a person who was an offeror in the previous 6 months, a person directed to be given notice of the application, and any other person with the leave of the Court: new section 44I deals with corporate knowledge. It provides that it is presumed, in the absence of proof to the contrary, that a person knew of any matter if an employee or agent knew of that matter in that capacity: new section 44J provides that a person cannot be liable for both a pecuniary penalty order and a fine for an offence under the principal Act for the same conduct. Amendments to Takeovers Code 45 Securities Legislation Explanatory note Clauses 58 and 59 contain transitional provisions. Regulatory impact and compliance cost statement No business compliance cost statement was required in respect of policy papers relating to insider trading, market manipulation, and penalties and remedies. These matters are not addressed here, accordingly. Regulatory impact statement: Application issues Statement of the nature and magnitude of the problem and the need for government action Takeovers Act asset threshold The Takeovers Act 1993 and the Takeovers Code currently apply to ‘‘specified companies’’ and ‘‘code companies’’ respectively, which are defined as a company registered under the Companies Act 1993 that is either party to a listing agreement with a securities exchange or that has at least 50 members or shareholders and $20 million or more of assets. The current threshold is not aligned with the objective of the Act, which is to ensure that all shareholders (including small shareholders) have an ability to participate in a company takeover. It is also ambiguous in that there is uncertainty on how to ascertain when the $20 million threshold has been met The extent of the impact of this problem cannot be easily quanti- fied—however it has been raised as a potential issue by the Takeovers Panel and by market participants. The application of the Securities Markets Act to futures The provisions in the Securities Markets Act 1988 relating to insider trading and proposed market manipulation provisions do not currently apply to behaviour on authorised futures exchanges. The rationale for protecting the interests of market participants by regulating behaviour on registered securities exchanges and authorised futures exchanges is similar. The non-application of the law to activity on futures exchanges could reduce domestic and overseas investor confidence in these markets. This problem is potentially large. Futures are an alternative form of investment product for investors and are important tools to enable businesses to reduce risk in their investment portfolios. Ineffective regulation leading to reduced confidence in futures markets could Explanatory note Securities Legislation 46 lead to less participation, reducing the liquidity of the market and opportunities for New Zealand businesses to reduce their risks. The territorial application of investment adviser provisions The Investment Advisers (Disclosure) Act 1996 is currently silent as to its territorial application. This raises 3 problems— · · · a lack of certainty about the rules that apply in situations where investment advice or brokering services are provided between New Zealand and another country: the potential for New Zealand to become an unregulated base of operations for advisers or brokers providing services offshore. This would harm New Zealand’s reputation and could lead to a lack of investor confidence in New Zealand: the ability for overseas advisers or brokers to advertise or solicit advice or services in New Zealand that does not comply with the requirements of New Zealand law. While these problems are not currently large, the potential is there for significant damage to New Zealand’s international reputation in the investment markets, and to individual New Zealanders. The application of the Securities Markets Act to non-quoted securities of public issuers The Securities Markets Act currently applies to ‘‘public issuers’’. A public issuer may have issued a number of different classes of securities, only some of which may be quoted on an exchange. However, all of the issuer’s securities are subject to the Act, whether they are quoted on the exchange or not. This means that insider trading, market manipulation, and disclosure requirements would apply in relation to some securities that are not available to the public to buy and sell on a securities exchange and that are often closely-held. The intention of the Act is to regulate only the trading of securities on registered securities exchanges, because there is a public expectation that securities quoted on a registered exchange will be subject to legislative protections. This problem is not large because, although the numbers are not known, there are not thought to be many listed entities that have issued other, non-quoted, securities. However for those entities, the unnecessary additional compliance requirements impose an unnecessary cost. 47 Securities Legislation Explanatory note Statement of the public policy objective The public policy objective is— · · to ensure that securities trading law applies appropriately and efficiently to entities and investors participating in securities markets: to ensure that the law applies only to entities and investors that members of the public would expect to be regulated. Statement of feasible options (regulatory and/or non-regulatory) that may constitute viable means for achieving the desired objective Status quo · · · · the Takeovers Act and Takeovers Code apply to a company that is either a party to a listing agreement with a securities exchange or that has at least 50 members or shareholders and $20 million or more of assets: the Securities Markets Act does not currently apply to futures: the territorial application of the Investment Advisers (Disclosure) Act 1996 is not specified: non-quoted securities of public issuers are subject to the Securities Markets Act. Preferred option · · · · · remove the $20 million asset threshold for companies to be subject to the Takeovers Act and the Takeovers Code: apply the insider trading and market manipulation provisions of the Securities Markets Act to futures: clarify the territorial application of investment adviser disclosure provisions by specifying that the provisions apply— in relation to advice or broker services or advertisements received in New Zealand, unless steps were taken to ensure New Zealanders did not receive the advice (unless the adviser or broker was operating from a country specified in regulation); and to advice and advertisements directed to people outside New Zealand by a person in New Zealand: · exempt non-quoted securities of public issuers from the requirements of the Securities Markets Act. Explanatory note Securities Legislation 48 Other options No other regulatory or non-regulatory options were considered feasible because the problems identified are narrow in their scope and there are a limited range of solutions that would address them. Statement of the net benefit of the proposal, including the total regulatory costs (administrative, compliance, and economic costs) and benefits (including non-quantifiable benefits) of the proposal, and other feasible options Takeovers Act asset threshold Removing the $20 million threshold will make it easier for a person wanting to take over a company, and for the Takeovers Panel, to establish whether the takeover is governed by the Takeovers Act and the Takeovers Code. It may also mean that more companies are caught by the takeovers provisions, however this cannot be quanti- fied because no statistics are currently collated that enable an assessment of the number of companies with 50 or more members or shareholders, and that currently have assets of less than $20 million. For a person taking over a company newly caught by the provisions, the total additional costs are estimated to be between $40,000 and $75,000, depending on the size of the company and the complexity of legal and independent merits advice required. (This includes the target company’s costs, which, under the provisions of the Takeovers Code, are charged back to the person making the takeover offer.) This would be balanced against a higher level of protection for shareholders of those companies, in the sense that they will have an equal opportunity to participate in any takeover offer and be treated fairly in the offer process under the provisions of the Takeovers Code. Applying the Securities Markets Act to futures The key benefit of this proposal is that it will prevent insider trading and market manipulation from occurring on futures markets, improving the efficiency of futures markets and investor confidence in the rules that apply to trading on futures markets in New Zealand. Prohibiting the activity will, therefore, help encourage both domestic and offshore investment in New Zealand futures markets, increasing the opportunities for businesses to reduce risks in their investment portfolios. As insider trading and market manipulation are conducted in secrecy and are difficult to detect, there is limited 49 Securities Legislation Explanatory note empirical evidence available to quantify the level of activity, and therefore the level of benefit gained by the proposal. However, it is believed that this activity does currently occur in New Zealand. The territorial application of investment adviser provisions This proposal will increase the certainty of the territorial application, reducing costs for advisers in determining whether the law applies. It will also help ensure that New Zealand does not become a base of operations for people marketing illegal offers of securities to offshore investors, and that overseas advisers and brokers do not illegally promote investments in New Zealand. This, in turn, helps to ensure that New Zealand’s securities market regulation is seen as robust and credible by both domestic and offshore investors and encourages investment in New Zealand’s securities markets. The application of the Securities Markets Act to non-quoted securities of public issuers The key benefit of this proposal is that it will ensure that the costs associated with regulation do not apply inappropriately to nonquoted securities. This will reduce the costs associated with complying with the regulatory requirements in the Securities Markets Act for both public issuers of non-quoted securities and investors required to make disclosure in relation to those securities (ie, substantial security holders and directors and officers). The proposal will mean that trading in non-quoted securities is not regulated in the same way as trading of quoted securities. There will be less disclosure to the market in relation to those securities and insider trading and market manipulation prohibitions will not apply. However, these securities are not widely held and are not able to be bought and sold by the public on a market, minimising the need for regulation. Statement of the consultation undertaken The Treasury, the Ministry of Justice, the Department for Prime Minister and Cabinet, Te Puni Kokiri, the Department for Courts, the Securities Commission, and the Takeovers Panel were consulted on the proposals. The proposals were contained in a discussion document released to the public in May 2002. Those submitters commenting on the issues discussed in this RIS were generally supportive of the proposals, although some submitters considered that non-quoted securities of Explanatory note Securities Legislation 50 public issuers should be subject to the regulatory framework in the Securities Markets Act. While it is accepted that the change proposed will reduce the coverage of the framework, the coverage will be more in line with the intention behind the provisions. Business compliance cost statement: Application issues The sources of any compliance costs Takeovers Act asset threshold · · · takeovers of the new companies covered by the Act and the Code will need to comply with their requirements. Red-tape costs arise from seeking professional advice, notification procedures, dealing with the Takeovers Panel, and stress: there will be compliance costs associated with learning the new threshold requirements: the test for when the Act will apply will be clearer, reducing some of the current costs associated with finding out when the Act will apply. The territorial application of investment adviser provisions People in New Zealand providing investment advice or broker services offshore, and people offshore advertising or providing services into New Zealand, will now need to comply with disclosure requirements in the Act (unless they are from a country exempted in regulation). There will be compliance costs associated with learning the new disclosure requirements and seeking an exemption from disclosure requirements from the Securities Commission if this is necessary. Applying the Securities Markets Act to futures There will be costs associated with learning the new requirements for those who participate in futures markets. The application of the Securities Markets Act to non-quoted securities of public issuers Those who issue or trade in the non-quoted securities will no longer be required to access information to enable them to meet disclosure requirements, or make the disclosure, which will reduce their compliance costs. 51 Securities Legislation Explanatory note The parties likely to be affected, by sector and size of firm Takeovers Act asset threshold · · (compliance cost increase)—businesses that wish to acquire 20% or more of securities in non-listed companies with 50 or more members and an asset threshold under $20 million. The number of companies that fall within this category cannot be quantified; and (compliance cost decrease)—businesses wishing to acquire 20% or more of securities in non-listed companies with 50 or more members who are unsure of the level of assets of the company. The territorial application of investment adviser provisions The new parties affected by the changes to the territorial application of the investment adviser regime will be those people providing advice or broker services from New Zealand to people offshore and people based offshore advertising or providing advice or broker business in New Zealand (if they are from a country not exempted in regulations). The number of businesses that fall within this category is not known. Applying the Securities Markets Act to futures Businesses that trade futures will be affected. The number of businesses that make trades through authorised futures exchanges is not known. The application of the Securities Markets Act to non-quoted securities of public issuers Those companies that are a party to a listing agreement with a registered securities exchange that have a separate class of nonquoted securities will be affected. There are currently 221 companies that are party to a listing agreement with a registered exchange in New Zealand. It is not possible to quantify how many of these companies have also issued other, non-quoted, securities, however there are not expected to be many. Explanatory note Securities Legislation 52 Quantitative or qualitative estimates of compliance costs Takeovers Act asset threshold · · · the compliance costs associated with making a takeover bid under the Takeovers Code are estimated to be approximately $15,000 to $35,000 for legal advice (depending on the complexity of the takeover) and approximately $8,000 to $13,000 for mailing and printing costs: the costs associated with learning the new threshold requirements are not known, however they are not expected to be large: the level of the reduction in costs of seeking advice about coverage of provisions are not known, however they are not expected to be large. The territorial application of investment adviser provisions These costs are not able to be quantified by industry organisations, but are not expected to be large. Applying the Securities Markets Act to futures These costs are not known, however they are not expected to be large. The application of the Securities Markets Act to non-quoted securities of public issuers The extent of these reductions in costs is not known but could be moderate. The longer term implications of the compliance costs—are they one-off costs? Will they be reducing over time? The costs associated with learning the new requirements will be oneoff. Costs and reductions of costs associated with refining the scope of the application of the law should stay constant. An assessment of the risks associated with any estimates and the level of confidence that can be placed on the compliance cost assessment The estimate of costs associated with complying with the Takeovers Code is based on information provided by legal practitioners who 53 Securities Legislation Explanatory note provide advice on takeovers bids, so there is a high level of confi- dence in the estimate provided. As the level of other costs cannot be quantified, there is only a moderate level of confidence in the estimates. Key compliance cost issues identified in consultation No key compliance cost issues were identified. Any overlapping compliance requirements with other agencies There are no overlapping compliance requirements. Steps taken to ensure that compliance costs were minimised Costs associated with learning the new requirements will be minimised through information dissemination to market participants by the Securities Commission and the Takeovers Panel, and through a transition period of several months after the legislation is passed but before the changes come into effect. Regulatory impact statement: Substantial security holders Statement of the nature and magnitude of the problem and the need for Government action The substantial security holder regime (established by the Securities Markets Act 1988) works reasonably well in its present framework, and can conceivably continue in a functional manner. However, there are potential problems in certain narrow aspects of the regime. These are: · · · difficulties when disclosing interests in public issuers that issue more than one class or type of security, as it can be difficult to determine the respective weighting of each class or type in order to calculate the total number of securities, hence problems arise in calculating the percentage of that total: inconsistencies in the requirements for the disclosure of interests that may arise in the future: the requirement for the Securities Commission to designate a person as exempt from the regime is superfluous, as in practice designation is contingent upon meeting statutory and (in some cases) set Commission criteria, rather than the Commission actually considering each individual case: 54 · · the uncertainty regarding collective investment schemes owing to confusion surrounding securities in the scheme (require disclosure) and securities in the manager (technically required, but often ignored as an irrelevant unintended requirement): the penalties and remedies associated with the regime are inconsistent with the other parts of the Securities Markets Act. For example, the Securities Commission lacks the ability to require someone in breach to disclose, or take a civil penalty action under the Act. To deter insider trading and other manipulative practices, while ensuring that investors and public issuers can identify substantial security holders and hence make informed investment decisions. In particular, disclosure obligations are clear, consistent, and easy to understand, and require disclosure only of relevant information so as to minimise compliance costs to business. Statement of feasible options (regulatory and/or non-regulatory) that may constitute viable means for achieving the Status quo · · · · a substantial security holder must immediately disclose their interest to the issuer and the market. Further disclosures are required upon a change of holding greater than 1%, and when a person ceases to hold an interest greater than 5%: only future interests that arise in relation to currently-issued securities need to be disclosed: the regime requires a person to meet certain statutory criteria in order to gain exemption, and then be approved by the Commission through the Commission designating it as such through a notice in the Gazette. Certain categories of person must meet further criteria set out by the Commission before being designated. The Commission also has a further general power of exemption: substantial interests in collective investment schemes must be disclosed, as must (technically) any securities in the manager of such a scheme: Explanatory note Securities Legislation Statement of the public policy objective(s) desired objective(s) Explanatory note · · only the public issuer can require disclosure to be made by its security holders who may be in breach of the disclosure requirements; the Securities Commission cannot: breaches of the regime are addressed through a variety of Court orders, eg, prohibiting the exercise of voting rights in securities or forfeiture of securities. Maintaining the status quo is not appropriate as it will not further the policy objective. Alter the relevant interest definition Narrow the relevant interest definition to focus on the actual votes underlying a security, rather than the security itself. This would reduce the range of disclosures required. Although this would aid clarity, some interests that are relevant (especially interests that may arise in the future) would not be disclosed. This would not further the policy objective, therefore this option was discarded. Preferred option: amend the Securities Markets Act 1988 The requirement of disclosure of 5% interests would generally remain unchanged, however, the following changes would be incorporated: · · · · · · differentiating between disclosure of interests in currently issued, listed voting securities (mandatory disclosure at 5% and 1% changes) and other interests, including certain interests that may arise in the future (no mandatory disclosure, but the Securities Commission may order persons to disclose these interests in appropriate circumstances): clarifying the status of collective investment schemes, excluding securities in non-listed managers of such schemes: requiring disclosure with regard to the total of an individual class or type of security, rather than the overall total of voting securities, including requiring present and future voting rights to be disclosed separately: removing the unnecessary Securities Commission designation power and providing general exemptions for those that fall within specified legal criteria, and maintaining the general power of exemption for special cases: giving the Commission the power to require those in breach to disclose or correct disclosure: introducing a civil penalties regime for breaches of the requirements with actions brought by the Commission. 55 Securities Legislation Explanatory note Securities Legislation 56 Statement of the net benefit of the proposal, including the total regulatory costs (administrative, compliance, and economic costs) and benefits (including non-quantifiable benefits) of the proposal, and other feasible options Government Additional Government funding of approximately $1,000,000 per annum will be needed to enable the Securities Commission to carry out its new functions proposed in the wider review of securities trading law, including in relation to the enforcement of the substantial security holder regime. The administrative burden on the Securities Commission will be slightly reduced by modifying the exemption regime. Securities market The proposed changes will give the market more relevant information, greater confidence that all disclosures are being made where appropriate, and reduce the likelihood of market deception. Investors should therefore have greater faith in investing capital, and do so more efficiently. New investors may also be more willing to enter the market. Some substantial security holders will face increased costs as disclosure will be required in a wider range of circumstances. There will also be a one-off cost for some substantial security holders in public issuers that have listed classes of securities who must make a transitional disclosure under the new requirements. However, some costs will be reduced by removing irrelevant interests from the disclosure requirements and by improving the exemption system. Public issuers will be able to undertake actions with more confi- dence as they will have a better idea of the identity of their substantial security holders. General economy An effective and enforced substantial security holder regime will increase confidence in the New Zealand financial market. The bene- fits to investors and companies that stem from this will flow through to general economic activity. 57 Securities Legislation Explanatory note Statement of consultation undertaken: Substantial security holders The proposals were contained in a Ministry of Economic Development discussion document released to the public in November 2002. The Securities Commission also released discussion documents relating to the issues in 1994 and 2001. In addition, the following government departments and agencies were consulted: the Department of the Prime Minister and Cabinet, the Treasury, the Ministry of Justice, Te Puni Kokiri, and the Securities Commission. The majority of submissions supported the thrust of the proposals, although there were some minor differences in the technical methods suggested. A small minority favoured narrowing the relevant interest definition. The Securities Commission separately argued for a dual disclosure regime, requiring disclosure by both class and with regard to the overall total. This was rejected as the difficulties for calculating totals would remain. Business compliance cost statement: Substantial security holders The major compliance costs will be one-off transitional costs involved in becoming familiar with the new system, especially obtaining professional advice where necessary (substantial security holders). Secondly, there are likely to be some costs associated with a one-off transitional recalculation of holdings by persons with relevant interests in the securities of issuers with more than one class of security. A further cost is processing extra disclosure notices (NZX and public issuers). There is, however, likely to be a cost reduction in the calculation of percentage holdings on an ongoing basis under the new system. The Ministry estimates there are over 500 current substantial security holder notices. These substantial security holders, along with other market participants, will need to familiarise themselves with the changes to the regime. Further, the Ministry estimates that approximately 22 of the over 200 listed public issuers have classes of listed voting securities. Security holders of these securities may be affected by the changes to the mandatory disclosure elements of the regime, but it is difficult to determine with any accuracy the numbers of persons that will be affected. Depending on the nature and complexity of a security holding, individual security holders may need to seek professional advice Explanatory note Securities Legislation 58 before completing the modified requirements. The costs of complying with the regime, such as form-filling (estimated at $50 to $100) will essentially remain unchanged, although costs will reduce in the calculation process owing to greater simplicity. However, existing security holders that are now within the regime will only see these costs as an increase. Conversely, the compliance costs for new investors will be reduced as the system will be easier to understand. The compliance costs of filing more notices by public issuers and the stock exchange will be minimal. Costs will decrease for most in the long term—the cost of disclosure will be less than the present regime as the requirements are easier to understand and the calculation simpler. However, security holders newly subject to the regime will face increased costs as they must disclose. There are overlapping compliance requirements with the directors’ and officers’ disclosure regime. A substantial security holder who is also a director or an officer will be required to disclose twice. However, although these disclosures arise out of the same security holding, the purpose and nature of the 2 sorts of disclosure are quite different and cannot be readily combined. Any changes to the legislation will be well publicised and explained. A minimum of 3 months will be allowed for those affected to understand the changes to the regime before the amendments come into force. Regulatory impact statement: Investment advisers and brokers Statement of the nature and magnitude of the problem and the need for government action The Investment Advisers (Disclosure) Act 1996 regulates disclosure requirements by investment advisers and brokers. The purpose of the Act is to ensure that members of the public have sufficient information about the investment advisers they deal with to allow them to make informed decisions about whether to ask for advice and whether or not to rely on that advice. The following problems have been identified with the Act: · some people seeking investment advice are not aware of their right to ask for important disclosure such as the adviser’s Explanatory note · · · · · experience and information that indicates the adviser has con- flicts of interests (currently this disclosure is only required to be provided if it is requested): the disclosure statement does not contain other information that investors may find useful in making decisions about whether to ask for, or rely on, advice (eg, dispute resolution facilities and whether the investment adviser is a member of a professional body): the absence of offence provisions for recommending illegal investment products heightens the risks for people investing in the market: there is a lack of incentive for investment advisers to comply with the Act because private enforcement of the law is often difficult due to the prohibitively high litigation costs and difficulties in obtaining evidence: the current scope of the definition of investment adviser in the Act may not cover all persons who provide investment advice, for example bank officers: the Act is currently inconsistent in places with other securities legislation. For example, the Act refers to ‘‘investors’’, while other securities legislation refers to ‘‘members of the public’’. This, along with a lack of definitions for advice, broker, and product advertisements leads to confusion and a lack of clarity as to the coverage of the Act. In 2001 the Securities Commission received over 600 public enquiries about investment advisers. In the same period, the Commission carried out 33 investigations of investment advisers. These related to non-disclosure of a relationship between investment advisers and issuers; standards and availability of investment adviser disclosure; offshore cold calling of New Zealanders; and overseas scams being offered domestically by local investment advisers. New Zealand investors have lost large sums of money due to illegal schemes promoted through New Zealand-based investment advisers. For example, the case of Gideon Investments saw 180 New Zealand investors lose approximately $6 million. In 2 other recent cases, losses amounted to $5 million and $8.3 million and involved approximately 400 small investors. Tests carried out by the Consumers’ Institute in 1998 and 1999 showed that the majority of investment advisers were not aware of their obligations under the Act and failed to comply with the law. 59 Securities Legislation 60 To promote informed decision making by potential investors in securities offerings and to ensure adequate compliance with the law relating to investment advisers. Statement of feasible options (regulatory and/or non-regulatory) Status quo The Investment Advisers (Disclosure) Act 1996 provides a 2-tier system of disclosure. Tier 1 is mandatory disclosure and includes information about any convictions an investment adviser has for dishonesty or bankruptcy during the preceding 5 years and procedures in relation to receiving investment money or property. Tier 2 information need only be disclosed if a client asks for the information. It includes the qualifications and experience of the investment adviser and matters that could indicate conflicts of interests. This requirement applies to investment advisers only. Investment brokers must provide tier 1 information as well as a description of the procedures relating to the receipt and disbursement of investment money and property. The status quo does not address the identified problems with the current regulatory regime for investment advisers. The preferred option: amend the Investment Advisers (Disclosure) Act 1996 to improve disclosure and enforcement The key features are— · · · · Explanatory note Securities Legislation Statement of the public policy objective combining tier 1 and tier 2 disclosure in a single disclosure document to be provided by investment advisers to members of the public before giving investment advice: requiring some additional types of information in the disclosure statement, including membership of a professional body, available dispute resolution facilities, fees charged for services, the date the statement was prepared, whether professional indemnity insurance is maintained, and whether the adviser has been expelled from a professional body: requiring investment advisers to refer to the availability of the investment statement in any advice advertisement: requiring both investment advisers and investment brokers to provide clients with updated information where there has been a change in circumstances that is material in nature and may affect people’s investment decisions: 61 Securities Legislation Explanatory note · · · · · making the recommendation of illegal offers of securities, and the distribution of misleading, deceptive, or confusing advertising, offences: strengthening the enforcement of investment adviser law by giving the Securities Commission the ability to apply to the Court without leave, to— make any order in relation to investment advisers that it is able to make under the Securities Markets Act, for example, orders requiring disclosure or release of corrective statements: order persons who are convicted of a dishonesty offence or who breach New Zealand or overseas investment adviser provisions not to give investment advice or receive investment money or property for a period of up to 10 years: make an order to freeze investment brokers’ accounts or transfer brokers’ investment funds into trust accounts: · giving the Commission the ability to make orders to— · · · · suspend investment advisers’ or investment brokers’ disclosure documents and/or advertisements for up to 14 days, or make an order prohibiting them after 7 days’ notice; and suspend investment advisers or investment brokers for a period up to 14 days: amending the definition of investment adviser so that employees, agents, and persons associated with the issuer, promoter, or trustee giving investment advice are not excluded from the Act: giving the Commission the power to exempt particular industries or sectors, or disclosure through certain forms of media, from the disclosure requirements. Alternative option: occupational licensing of investment advisers Occupational licensing sets a minimum standard for market participants. Criteria for licensing often include qualifications, training, and experience requirements that would make the basis of participation clear. At this stage, this option is not considered feasible as detailed analysis of the costs and benefits of occupational licensing Explanatory note Securities Legislation 62 in the New Zealand context has not been carried out. This option may be looked at in more detail in the future. Statement of the net benefit of the proposal Industry participants The proposals should improve business practice across the industry and hence raise consumer confidence in the investment market. The offence provision will act as a deterrent to investment advisers and brokers recommending offers of securities that do not comply with requirements of the Securities Act 1978. Increasing the scope of the legislation to cover a larger part of the investment advisory community will ensure that the public has additional protection when receiving financial advice from these people. These measures will strengthen the integrity of the investment advisory community in general. There may be some increased costs for investment advisers arising out of the requirement to provide additional disclosure, referring to the investment statement in any advice advertisement and providing the updated information. Costs will also increase for investment advisers who are currently outside the scope of the Act. Investment advisers seeking exemptions from the Act will have to apply to the Securities Commission and pay the necessary fees. Consumers/the economy The new disclosure requirements will provide the public with additional information they require to make informed decisions about whether or not to seek investment advice from a particular adviser and whether to trust the advice provided by particular advisers. In addition, the level of consumer confidence in the New Zealand investment advisory industry may rise, as a result of greater protection against advisers recommending illegal offers of securities and scams and the Securities Commission’s power to take action on the public’s behalf. Government The Commission’s capital and operating costs will increase as a result of the new proposed investment adviser functions and the other functions that it will be given arising out of the review of 63 Securities Legislation Explanatory note securities trading law. The capital funding required for these proposals will be considered as part of the consideration of the Commission’s overall capital needs. Increased operating costs in respect of all of the Commission’s new functions under the Bill are expected to require ongoing funding of approximately $1,000,000 (GST inclusive) per annum. Statement of the consultation undertaken The Securities Commission released a discussion paper on investment advisers in August 2001 for a 2-month consultation period with industry participants and other key stakeholders. 40 submissions were received including comment from the main industry bodies such as Investment Savings and Insurance Associations of New Zealand (ISI), the Financial Planners and Insurance Advisers Association Incorporated (FPIA), and the Consumers’ Institute. The following government departments and agencies have also been consulted: the Department of Prime Minister and Cabinet, the Treasury, the Ministry of Consumer Affairs, Te Puni Kokiri, the Ministry of Justice, and the Securities Commission. The main concern raised by submitters was the need for flexibility in the regime to deal with practical problems or the application of the provisions to individuals or classes of people where it was not intended, or is not appropriate, that they be captured by all the requirements under the Act. The provision for exemptions addresses this concern. Business compliance cost statement: Investment advisers and brokers Compliance costs would arise as follows: · some one-off compliance costs will arise as investment advisers and brokers familiarise themselves with their new obligations. These will be more significant for members of the investment advisory community who are not currently within the scope of the Act. These costs could include— · seeking legal advice; and training and/or familiarising staff with new · requirements: · people seeking exemptions under the Act would have to apply to the Securities Commission and pay a fee for this work. Explanatory note Securities Legislation 64 All investment advisers operating in the New Zealand market will be affected by the new disclosure requirements. The number of advisers in New Zealand is not known, however the Financial Planners and Insurance Advisers Association (FPIAA), which is the largest body representing investment advisers in New Zealand, has approximately 1 350 members. All investment brokers operating in the New Zealand market will also be affected by the requirement to provide updated disclosure. The number of investment brokers is not known. All employees, agents, and persons associated with the issuer, promoter, or trustee will be affected by the extension of the scope of the regulation. It is not known how many people will be ultimately affected by this requirement as some, for example bank officers, may be granted an exemption under the Act. Industry associations have been unable to provide quantifiable estimates of compliance costs. However, it is not estimated that the changes would result in a significant increase in compliance costs for those already providing disclosure documents. For employees, agents, and persons associated with the issuer, promoter, or trustee now required to provide a disclosure statement, the initial cost of preparing such a statement will be greater, but again cannot be quantified. It is estimated that the costs of seeking an exemption from the Securities Commission from the disclosure requirements will be approximately $2,500 per application, based on an estimated application fee of $112.50 and an estimated rate of $225 per hour for a Commission member’s work and $163 per hour for an officer or employee of the Commission. The precise fees charged by the Commission will be specified in regulations. The costs associated with learning new requirements will be one-off costs. The costs arising from the fees charged for Commission exemptions will be ongoing. It is anticipated that the Securities Commission will publish the disclosure requirements and guidelines on compliance on their website. Exemptions from the information disclosure requirements and in relation to the definition of investment adviser will be provided in regulations and by application to the Securities Commission. This will allow some flexibility in situations where written disclosure cannot be made at the time the investment advice is given, for Explanatory note example when investment advice is given over the telephone or by way of broadcast. Securities Legislation 65 1 2 3 4 5 6 7 8 Hon Margaret Wilson Securities Legislation Bill Government Bill Title Commencement Part 1 Amendments to Securities Acts Amendments to remedies Civil liability General provisions on civil liability remedies Contents 9 10 Subpart 1—Amendments to Securities Act 1978 Securities Act 1978 called principal Act in this subpart 11 New sections 55A to 55G inserted 12 55A Overview of civil liability 55B What are civil liability events 55C When Court may make pecuniary penalty orders and declarations of civil liability 55D Purpose and effect of declarations of civil liability 55E What declarations of civil liability must state 55F Amount of pecuniary penalty 55G When liable persons must pay compensation for civil liability event Civil liability for misstatements in advertisement or registered prospectus Civil liability for misstatements by expert Civil liability for breach of contributory mortgage regulations New sections 57B to 57E inserted 13 57B Interrelationship of civil liability remedies 57C Only one pecuniary penalty order may be made for same conduct 234—1 57D Standard of proof for civil remedies 57E Time limit for applying for civil remedies New heading inserted Criminal liability Criminal liability for obstructing exercise of powers New sections 60A to 60G and headings inserted Management bans 60A When Court may make management banning orders 60B Terms of management banning orders 60C Offence of contravening management banning order 60D Only one management banning order may be made for same conduct 60E Persons automatically banned from management 60F References in other enactments to management bans in Companies Act 1993 extend to management bans in principal Act General provisions on liability 60G No pecuniary penalty and fine for same conduct Heading above section 65A amended Amendments to investigation and enforcement powers New sections 69B, 69BA, and 69C substituted 69B Who may receive evidence 69BAAdmissibility of evidence 1 14 15 16 Transitional validation relating to Securities Amendment Act 2004 17 18 19 20 2 Securities Legislation 69C How evidence may be given Power to summon witnesses New section 69U substituted 69U Restrictions on use of selfincriminating statements obtained by summons Amendments to regulation empowering provisions New sections 70AA to 70AAF inserted 70AA Regulations may require compliance with generally accepted accounting practice and incorporate financial reporting standards by reference 70AAB Effect of amendments to, or replacement of, material incorporated by reference in regulations 70AAC Access to material incorporated by reference 70AAD Acts and Regulations Publication Act 1989 not applicable to material incorporated by reference 70AAE Application of Regulations (Disallowance) Act 1989 to material incorporated by reference 70AAF Application of Standards Act 1988 not affected Transitional validation for small employer superannuation schemes Transitional provision Transitional provision for existing offences and contraventions Subpart 2—Amendments to Securities Markets Act 1988 Securities Markets Act 1988 called principal Act in this subpart Amendments to interpretation 2 3 4 New sections 2 to 6 substituted Interpretation What is material information in relation to public issuer 3A What is material information in relation to futures contract What information is generally available to the market 5 6 Relevant interests in securities (basic rule) 5A Extension of basic rule to powers or controls exercisable through trust, agreement, practice, etc 5B Extension of basic rule to interests held by other persons under control or acting jointly Situations not giving rise to relevant interests Insertion of new dealing misconduct provisions New Part 1 substituted 21 Part 1 Dealing misconduct 7 Subpart 1—Insider conduct and market manipulation prohibitions Interpretation of certain terms used in this subpart Insider conduct prohibited 8 Prohibition of insider conduct 8A Who is information insider 8B Meaning of inside information 8C Information insider must not trade 8D Information insider must not disclose inside information 8E Information insider must not advise or encourage trading 8F Criminal liability for insider conduct When prohibition on insider conduct does not apply 9 Exception for trading required by enactment 9A Exception for disclosure required by enactment 9B Exceptions in respect of underwriting agreements 9C Exception in case of knowledge of person’s own intentions or activities 9D Exception for agent executing trading instruction only 9E Exceptions for takeovers 9F Exception for redemption of units in unit trust 9G Exception for Reserve Bank Securities Legislation Affirmative defences 10 Absence of knowledge of trading 10A Inside information obtained by independent research and analysis 10B Equal information 10C Options and trading plans 10D Chinese wall defence Market manipulation 11 False or misleading statement or information 11A Criminal liability for false or misleading statement or information 11B False or misleading appearance of trading, etc 11C Presumption as to false or misleading appearance of trading, etc 11D Criminal liability for false or misleading appearance of trading, etc Subpart 2—General dealing misconduct prohibition Interpretation 12 Meaning of terms used in general dealing misconduct prohibition General dealing misconduct prohibition 13 Misleading or deceptive conduct generally (for dealings in listed and non-listed securities) 13A Defences that may be raised in proceeding for contravention of section 13 13B Defendant must give notice of identity of third party Exceptions 14 Exceptions for takeovers 15 Exception for repurchase of shares by company 16 Exception for offers of securities to public 17 Exception for disclosure by investment advisers or brokers Territorial scope 18 Territorial scope of general dealing misconduct prohibition Fair Trading Act 1986 excluded 19 Fair Trading Act 1986 does not apply to conduct regulated by sections 11 to 11D and 13 of this Act Amendments to disclosure of relevant interests by directors and officers of public issuers 22 23 24 25 New section 19SA inserted 19SA Purpose of subpart Public issuer must keep interests register Inspection and copying of interests register New section 19ZF substituted 19ZF Offences relating to interests register Amendments to disclosure of interests of substantial security holders in public issuers New subpart 3 of Part 2 substituted 26 Subpart 3—Disclosure of interests of substantial security holders in public issuers 20 Purpose of subpart 21 Meaning of substantial security holder, substantial holdings, and percentage Event disclosure obligations 22 Persons must disclose if begin to have substantial holding 23 Substantial security holders must disclose if subsequent movement of 1% in holdings 24 Substantial security holders must disclose if subsequent changes in nature of relevant interests 25 Persons must disclose if cease to have substantial holding 26 What disclosure required 27 Form and method of disclosure 28 Public issuer must give acknowledgment of disclosure 29 How to ascertain total voting securities in class of public issuer’s voting securities for purposes of disclosure 30 Exemption for persons with interest in other substantial security holders who comply 3 Securities Legislation 31 Exemption for trustee corporations and nominee companies 32 Conditions of exemption for trustee corporations and nominee companies 33 Extended time for disclosure for trustees, executors, and administrators Required disclosure obligations 34 Commission may require persons to disclose to market relevant interests and powers to get relevant interests 35 Public issuer may require registered holder to disclose relevant interests to it 35A Public issuer may require person who has relevant interest to disclose information to it 35B Form and method of notice requiring disclosure Register and publication of substantial holdings 35C Public issuers must maintain register of disclosures of substantial holdings 35D Inspection and copying of substantial holdings register 35E Offences relating to substantial holdings register 35F Public issuers must publish information on substantial holdings 35G Registered exchange must publish disclosures 35H Offence for failing to publish information on substantial holdings or disclosures 35I No liability for publication of substantial holdings or disclosures 35J Notice under this subpart not to affect incorporation of public issuer or constitute notice of trust Insertion of new Part 4 on investment advisers and brokers and new Part 5 on enforcement and remedies 4 New Parts 4 and 5 substituted 27 Part 4 Investment advisers and brokers Application of this Part 41 When investment advice given to public, etc 41A Meaning of security in this Part Disclosure by investment advisers 41B Investment advisers’ disclosure obligation 41C Investment adviser must disclose experience, qualifications, professional standing, etc 41D Investment adviser must disclose certain criminal convictions, etc 41E Investment adviser must disclose fees 41F Investment adviser must disclose other interests and relationships 41G Investment adviser must disclose details of securities about which advice given Disclosure by investment brokers 41H Investment brokers’ disclosure obligation 41I Investment broker must disclose certain criminal convictions, etc 41J Investment broker must disclose procedures for dealing with investment money or investment property Method of disclosure 41K How disclosure must be made Other requirements relating to disclosure 41L Disclosure must not be misleading 41M Disclosure of additional information 41N No compliance with disclosure obligations if disclosure statement out of date Securities Legislation 41O Advertisement must refer to disclosure statement 41P Advertisement must not be deceptive, misleading, or confusing Offences 41Q Offence for failure to comply with disclosure obligation 41R Offence of deceptive, misleading, or confusing disclosure 41S Offence of deceptive, misleading, or confusing advertisement 41T Recommending, or receiving money for, acquisition of securities prohibited if offer for subscription illegal 41U Defence of immateriality Territorial scope of this Part 41V Territorial scope Miscellaneous 41W No contracting out 41X Liability under other law or enactment Part 5 Enforcement and remedies Subpart 1—Preliminary provisions 42 What are contraventions for purposes of Part 42A Definitions in this Part Subpart 2—Commission’s enforcement powers Prohibition and corrective orders 42B When Commission may make prohibition and corrective orders 42C Terms of prohibition and corrective orders Disclosure orders 42D When Commission may make disclosure orders 42E Terms of disclosure orders Temporary investment adviser and broker banning orders 42F When Commission may make temporary banning orders for investment adviser or broker activities 42G Terms of temporary banning order for investment adviser and broker activities Process for Commission’s orders 42H Commission must follow steps before making orders 42I Commission may shorten steps for specified orders 42J Commission must give notice after making orders General provisions 42K General provisions on Commission’s orders 42L Offence for failing to comply with Commission’s orders Subpart 3—Court’s enforcement powers Injunctions 42M What Court may injunct 42N When Court may grant injunctions and interim injunctions 42O Undertaking as to damages not required by Commission Corrective orders 42P When Court may grant corrective orders 42Q Terms of corrective orders Disclosure orders 42R When Court may make disclosure orders 42S Terms of disclosure orders Subpart 4—Civil remedies Overview of civil remedies 42T Overview of civil remedies 42U What are civil remedy provisions Pecuniary penalty orders and declarations of contravention 42V When Court may make pecuniary penalty orders and declarations of contravention 42W Purpose and effect of declarations of contravention 42X What declarations of contravention must state 42Y Maximum amount of pecuniary penalty 42Z Guidance for Court on how to determine gains made or losses avoided for purposes of maximum amount 42ZA Considerations for Court in determining pecuniary penalty 5 Securities Legislation Compensatory orders 42ZB When Court may make compensatory orders 42ZC Terms of compensatory orders Civil remedy order for investment advisers’ or brokers’ disclosure obligations 42ZD When Court may make civil remedy order for investment advisers’ or brokers’ disclosure obligations 42ZE Terms of civil remedy order for investment advisers’ or brokers’ disclosure obligations Other civil remedy orders 42ZF When Court may make other civil remedy orders 42ZG Terms of other civil remedy orders Interrelationship of civil remedies 42ZH Interrelationship of civil remedy orders 42ZI Only one pecuniary penalty order may be made for same conduct General 42ZJ Standard of proof for civil remedies 42ZK Time limit for applying for civil remedies Subpart 5—Criminal offences and penalties Penalties for offences 43 Penalties for failing to comply with Part 1 43A Penalties for failing to comply with Part 2 43B Penalties for failing to comply with Part 2B 43C Penalties for failing to comply with Part III 43D Penalties for failing to comply with Part 4 43E Penalties for failing to comply with this Part Management bans 43F When Court may make management banning orders 6 43G Terms of management banning orders 43H Offence of contravening management banning order 43I Persons automatically banned from management 43J Miscellaneous provisions on management bans in Companies Act 1993, Securities Act 1978, and Securities Markets Act 1988 Investment adviser or broker bans 43K When Court may make banning orders for investment adviser or broker activities 43L Terms of investment adviser or broker banning orders 43M Offence of contravening investment adviser or broker banning order 43N Persons automatically banned from investment adviser or broker activities 43O General provisions for bans and banning orders Court orders relating to investment brokers’ accounts 43P When Court may make orders relating to investment brokers’ accounts 43Q Terms of orders relating to investment brokers’ accounts Time for laying information for summary offences 43R Time for laying information for summary offences Subpart 6—General 43S Evidence not otherwise admissible 43T Court may order payment of Commission’s costs 43U Orders to secure compliance 43V Giving notice of applications for Court orders 43W General provisions as to Court’s orders 43X Persons entitled to appear before Court 43Y Knowledge of matters presumed if employee or agent knows matters Securities Legislation 43Z No pecuniary penalty and fine for same conduct 32 Amendments to exemption and regulation empowering provisions 28 New sections 48 to 49E and heading substituted Exemptions granted and removed by Commission 33 34 35 36 37 38 39 40 48 Exemptions granted by Commission 48A Commission must notify reasons for exemption 48B Commission may vary or revoke exemption 48C Commission may designate persons as not exempt from disclosure obligations 48D Requirements for Commission for designations of persons as not exempt 41 Regulations 42 48E Regulations requiring continuous disclosure by public issuers 48F Requirements for regulations replacing continuous disclosure listing rules 48G Ongoing requirements for continuous disclosure regulations 49 Regulations concerning directors’ and officers’ disclosure obligations 49A Regulations concerning substantial holding disclosure 49B Regulations concerning dealing in futures contracts 49C Regulations concerning investment advisers and brokers 49D Other regulations 49E Breach of exemption conditions Miscellaneous 29 30 31 Related amendments Transitional provisions relating to new subpart 3 Transitional provision for existing offences and contravention Part 2 Amendments to takeovers legislation Amendments to Takeovers Act 1993 Takeovers Act 1993 called principal Act in this Part Interpretation Object of this Act New heading inserted New sections 31L to 31MA substituted 31L Who may receive evidence 31M Admissibility of evidence 31MA How evidence may be given Power to summon witnesses Panel’s powers in respect of compliance with takeovers code Restraining orders New section 33AA inserted 33AA Permanent compliance orders Heading above section 33E and sections 33E and 34 repealed New subpart 2 inserted Subpart 2—Enforcement by Court Overview of enforcement powers and civil remedies 33E Overview of enforcement powers and civil remedies Injunctions 33F What Court may injunct 33G When Court may grant injunctions and interim injunctions 33H Undertaking as to damages not required by Panel Various civil remedy orders 33I When Court may make various civil remedy orders 33J Terms of various civil remedy orders Compensatory orders 33K When Court may make compensatory orders 33L Terms of compensatory orders 7 43 44 45 46 47 48 49 50 51 8 Securities Legislation Pecuniary penalty orders and declarations of contravention 33M When Court may make pecuniary penalty orders and declarations of contravention 33N Purpose and effect of declarations of contravention 33O What declarations of contravention must state 33P Maximum amount of pecuniary penalty 33Q Considerations for Court in determining pecuniary penalty 52 General Persons who may apply Repeal of sections 36 and 37 Court may have regard to determinations and recommendations by 53 Panel Section 39 repealed 54 55 Revocation, variation, and suspension of orders 56 New section 41 substituted 41 Court may excuse contravention Court may require person to give evidence or produce documents relating to interests in securities New sections 43 to 43C substituted 43 Interrelationship of civil remedy orders 43A Only one pecuniary penalty order may be made for same conduct 43B Standard of proof for civil remedies 57 43C Time limit for applying for civil remedies New heading and subparts 3 and 4 inserted Subpart 3—Offences 58 General offences 44 General offences 59 False or misleading statement or information 44B False or misleading statement or information 44C Criminal liability for false or misleading statement or information 44D Exception for disclosure by investment advisers or brokers Subpart 4—General 44E Jurisdiction of Courts in New Zealand 44F Court may order payment of Panel’s costs 44G Giving notice of applications for Court orders 44H Persons entitled to appear before Court 44I Knowledge of matters presumed if employee or agent knows matters 44J No pecuniary penalty and fine for same conduct New Part 4 heading inserted Part 4 Miscellaneous Amendments to takeovers code Takeovers code is called code in this Part Interpretation Offer period New Part 8 added Part 8 Market manipulation 64 Misleading or deceptive conduct 64A Defences that may be raised in proceeding for contravention of rule 64 64B Defendant must give notice of identity of third party 64C Exception for disclosure by investment advisers or brokers Amendments to replace references to takeovers schemes Amendments to replace references to takeovers schemes Transitional provisions Transitional provision for acquisitions made or committed to before commencement of this Part Transitional provision for existing offences and contraventions Schedule Related amendments Part 1 cl 4 Securities Legislation The Parliament of New Zealand enacts as follows: Title 1 This Act is the Securities Legislation Act 2004. Commencement 2 (1) This Act comes into force on 1 November 2005 (except as pro- 3 vided in subsection (2)). (2) The following provisions come into force on a date to be appointed by the Governor-General by Order in Council: (a) section 22 of this Act (which relates to disclosures of interests of substantial security holders in public issuers); and (b) Part 4 of the Securities Markets Act 1988 (which relates to investment advisers and brokers), as inserted by section 27 of this Act, and section 27(2) (which repeals the Investment Advisers (Disclosure) Act 1996). (3) One or more Orders in Council may be made appointing different dates for the commencement of different provisions. 1 4 Part 1 Amendments to Securities Acts Subpart 1—Amendments to Securities Act 1978 Securities Act 1978 called principal Act in this subpart In this subpart, the Securities Act 19781 is called ‘‘the principal Act’’. 1978 No 103 Amendments to remedies New sections 55A to 55G inserted (1) The principal Act is amended by inserting, after section 55, the following heading and sections: ‘‘Civil liability ‘‘55A Overview of civil liability ‘‘(1) The following civil remedies may be available from the Court under this Act if there is a civil liability event: ‘‘(a) a pecuniary penalty order and declaration of civil liability (on application by the Commission only) under section 55C: 9 Securities Legislation Part 1 cl 4 ‘‘(b) compensation under section 55G. ‘‘(2) Sections 56 to 57A cover who is liable for the civil liability event for both these remedies. ‘‘(3) Section 57B covers how these remedies interrelate with each other. ‘‘(4) This section is a guide only to the general scheme and effect of sections 55B to 57E. ‘‘55B What are civil liability events In this Part, a civil liability event is— ‘‘(a) distribution of an advertisement or a registered prospectus that includes an untrue statement: ‘‘(b) a breach of regulations made under this Act relating to the offer, sale, or management of interests in contributory mortgages. ‘‘55C When Court may make pecuniary penalty orders and declarations of civil liability If the Commission applies for a pecuniary penalty order against a person under this Act, the Court— ‘‘(a) must determine whether there has been a civil liability event; and ‘‘(b) must make a declaration of civil liability if satisfied that there is a civil liability event (see sections 55D and 55E); and ‘‘(c) may order the person to pay to the Crown a pecuniary penalty that the Court considers appropriate (see section 55F) if it is satisfied that there is a civil liability event, that the person is liable for a pecuniary penalty order for that civil liability event under sections 56 to 57A, and that the civil liability event— ‘‘(i) materially prejudices the interests of subscribers for the securities involved; or ‘‘(ii) is likely to materially damage the integrity or reputation of any of New Zealand’s securities markets; or ‘‘(iii) is otherwise serious. ‘‘55D Purpose and effect of declarations of civil liability ‘‘(1) The purpose of a declaration of civil liability is to enable a person who brings proceedings under section 55G to rely on the 10 Part 1 cl 4 Securities Legislation declaration in the proceedings for compensation, and not be required to prove the civil liability event. ‘‘(2) Accordingly, a declaration of civil liability is conclusive evidence of the matters that must be stated in it under section 55E. ‘‘(3) A declaration of civil liability does not state who is liable for the civil liability event as a person’s liability may differ under sections 56 to 57A according to whether the remedy sought is a pecuniary penalty order or compensation. ‘‘55E What declarations of civil liability must state A declaration of civil liability must state the following: ‘‘(a) the court that made the declaration; and ‘‘(b) whether the civil liability event comes within paragraph (a) or paragraph (b) of section 55B; and ‘‘(c) the conduct that constituted the civil liability event. ‘‘55F Amount of pecuniary penalty ‘‘(1) The maximum amount of a pecuniary penalty under this Act is $5,000,000. ‘‘(2) In determining an appropriate pecuniary penalty, the Court must have regard to all relevant matters, including— ‘‘(a) the nature and extent of the civil liability event; and ‘‘(b) the likelihood, nature, and extent of any damage to the integrity or reputation of New Zealand’s securities mar- ‘‘(c) the nature and extent of any loss or damage suffered by ‘‘(d) the circumstances in which the civil liability event kets because of the civil liability event; and subscribers because of the civil liability event; and occurred; and ‘‘(e) whether or not the person has previously been found by the Court in proceedings under this Act to have engaged in any similar conduct; and ‘‘(f) the matters set out in section 57B (interrelationship of civil liability remedies). ‘‘55G When liable persons must pay compensation for civil liability event ‘‘(1) A liable person must pay compensation to all persons who subscribe for any securities on the faith of an advertisement or registered prospectus that includes an untrue statement for the 11 Securities Legislation Part 1 cl 4 loss or damage that the persons may have sustained by reason of the untrue statement. ‘‘(2) A liable person must pay compensation to all persons who subscribe for an interest in a contributory mortgage, or who hold an interest in a contributory mortgage, for the loss or damage they may have sustained by reason of any breach of regulations made under this Act relating to the offer, sale, or management of interests in contributory mortgages. ‘‘(3) A liable person is a person who is liable for compensation for the relevant civil liability event under any of sections 56 to 57A.’’ (2) Section 2(1) of the principal Act is consequentially amended by inserting, in its appropriate alphabetical order, the following definition: ‘‘civil liability event has the meaning set out in section 55B’’. 5 Civil liability for misstatements in advertisement or registered prospectus (1) Section 56 of the principal Act is amended by omitting the heading, and substituting the heading ‘‘Which persons are liable for misstatements’’. (2) Section 56 of the principal Act is amended by repealing subsection (1), and substituting the following subsection: ‘‘(1) A person is liable for a pecuniary penalty order (section 55C) or for compensation (section 55G) for the distribution of an advertisement or registered prospectus that includes an untrue statement if— ‘‘(a) the person is the issuer of the securities referred to in the advertisement or registered prospectus (the issuer) and the issuer is an individual: ‘‘(b) in the case of an advertisement, the person— ‘‘(i) is a director of the issuer at the time that the advertisement is distributed; or ‘‘(ii) has authorised himself or herself to be named and is named in the advertisement as a director of the issuer or as having agreed to become a director immediately or after an interval of time: ‘‘(c) in the case of a registered prospectus, the person— ‘‘(i) has signed the prospectus as a director of the issuer or is a person on whose behalf the prospectus has been so signed; or 12 Part 1 cl 6 Securities Legislation ‘‘(ii) has authorised himself or herself to be named and is named in the prospectus as a director of the issuer or has agreed to become a director either immediately or after an interval of time: ‘‘(d) the person is a promoter of the securities referred to in the advertisement or registered prospectus.’’ (3) Section 56(3)(b) of the principal Act is amended by inserting, before the words ‘‘after the distribution’’, the words ‘‘(in the case of liability for compensation)’’. (4) Section 56(3) of the principal Act is amended by inserting, after paragraph (b), the following paragraph: ‘‘(ba) (in the case of liability for a pecuniary penalty order) as regards every untrue statement not purporting to be made on the authority of an expert or of a public official document or statement, he or she had reasonable grounds to believe and did believe, up to the time of the distribution of the advertisement or prospectus, that the statement was true; or’’. (5) Section 56(3)(c) of the principal Act is amended by inserting, before the words ‘‘as regards every untrue statement’’, the words ‘‘(in the case of liability for compensation)’’. 6 Civil liability for misstatements by expert (1) Section 57 of the principal Act is amended by omitting the heading, and substituting the heading ‘‘Which experts are liable for misstatements’’. (2) Section 57 of the principal Act is amended by repealing subsection (1), and substituting the following subsection: ‘‘(1) A person is liable for a pecuniary penalty order (section 55C) or for compensation (section 55G) for an untrue statement included in an advertisement or registered prospectus if— ‘‘(a) the person gave consent to the distribution of the advertisement or registered prospectus under section 38A or section 40 or under regulations made under this Act; and ‘‘(b) the untrue statement purports to be made by him or her as an expert.’’ (3) Section 57(2)(b) of the principal Act is amended by inserting, before the words ‘‘after the distribution of’’, the words ‘‘(in the case of liability for compensation)’’. 13 Securities Legislation Part 1 cl 6 (4) Section 57(2) of the principal Act is amended by inserting, after paragraph (b), the following paragraph: ‘‘(ba) (in the case of liability for a pecuniary penalty order) he or she was competent to make the statement and that he or she had reasonable grounds to believe and did, up to the time of the distribution of the advertisement or registered prospectus, believe that the statement was true; or’’. (5) Section 57(2)(c) of the principal Act is amended by inserting, before the words ‘‘he or she was competent’’, the words ‘‘(in the case of liability for compensation)’’. 7 Civil liability for breach of contributory mortgage regulations (1) Section 57A of the principal Act is amended by omitting the heading, and substituting the heading ‘‘Which persons are liable for breaches of contributory mortgage regulations’’. (2) Section 57A of the principal Act is amended by repealing subsection (1), and substituting the following subsection: ‘‘(1) A person is liable for a pecuniary penalty order (section 55C) or for compensation (section 55G) for a breach of regulations made under this Act relating to the offer, sale, or management of interests in contributory mortgages if,— ‘‘(a) in the case of a contributory mortgage broker who is an individual, the person acts, or is charged with acting, as the contributory mortgage broker for the contributory mortgage at the time that the breach occurred: ‘‘(b) in the case of a contributory mortgage broker that is a body corporate or other body, the person is— ‘‘(i) the contributory mortgage broker; or ‘‘(ii) a director of the contributory mortgage broker that is acting, or is charged with acting, as the contributory mortgage broker for the contributory mortgage at the time that the breach occurred.’’ New sections 57B to 57E inserted 8 The principal Act is amended by inserting, after section 57A, the following heading and sections: 14 Part 1 cl 9 Securities Legislation ‘‘General provisions on civil liability remedies ‘‘57B Interrelationship of civil liability remedies ‘‘(1) A person may be liable for both a pecuniary penalty order and compensation for the same conduct. ‘‘(2) However, in determining whether a person is liable for one kind of remedy (remedy A) and, if they are, the amount or effect of remedy A, the Court must have regard to— ‘‘(a) whether another remedy (remedy B) has been imposed on the person for the conduct concerned in the application for remedy A; and ‘‘(b) if so, the amount or effect of remedy B. ‘‘57C Only one pecuniary penalty order may be made for same conduct If conduct by a person constitutes 2 or more civil liability events, proceedings may be brought against that person for any 1 or more of the civil liability events, but no person is liable to more than 1 pecuniary penalty order for the same conduct. ‘‘57D Standard of proof for civil remedies The proceedings under sections 55A to 57A are civil proceedings and the usual rules of the Court and rules of evidence and procedure for civil proceedings apply (including the standard of proof). ‘‘57E Time limit for applying for civil remedies ‘‘(1) An application for a pecuniary penalty order may be made at any time within 2 years after the date on which the matter giving rise to the civil liability event was discovered or ought reasonably to have been discovered. ‘‘(2) The usual time limits apply to all applications for compensation.’’ New heading inserted 9 The principal Act is amended by inserting, after section 59, the following heading: ‘‘Criminal liability’’. 15 Securities Legislation Part 1 cl 10 10 Criminal liability for obstructing exercise of powers (1) Section 59A(1) of the principal Act is amended by repealing paragraphs (b) and (c), and substituting the following paragraphs: ‘‘(b) having been summoned to appear before the Commission or a member, officer, or employee of the Commission, for the purposes of any matter, without reasonable excuse— ‘‘(i) refuses or fails to appear: ‘‘(ii) refuses to take an oath or affirmation as a witness: ‘‘(iii) refuses to answer any question: ‘‘(iv) fails or refuses to produce any document or information that the person is required to provide; or ‘‘(c) deceives or attempts to deceive or knowingly misleads the Commission or a member, officer, or employee of the Commission in providing evidence to any of them; or’’. (2) Section 59A of the principal Act is amended by inserting, after subsection (1), the following subsection: ‘‘(1A) A body corporate commits an offence under subsection (1)(b)(ii) or subsection (1)(b)(iii) if its representative appearing for it refuses to take an oath or affirmation as a witness or refuses to answer any question.’’ 11 New sections 60A to 60G and headings inserted The principal Act is amended by inserting, after section 60, the following headings and sections: ‘‘Management bans ‘‘60A When Court may make management banning orders ‘‘(1) The Court may, on application by an entitled person, make a management banning order against a person (A) if— ‘‘(a) A has been convicted of an offence against this Act or a pecuniary penalty order has been made against A under this Act; or ‘‘(b) A has, while a director of an incorporated or unincorporated body, persistently contravened this Act or, if the incorporated or unincorporated body has so contravened, persistently failed to take all reasonable steps to obtain compliance with this Act; or 16 Part 1 cl 11 Securities Legislation ‘‘(c) A has been prohibited in an overseas jurisdiction from carrying on activities that the Court is satisfied are substantially similar to any of the activities referred to in section 60B in connection with a contravention of any law relating to the offering of securities. ‘‘(2) An entitled person is— ‘‘(a) the Commission: ‘‘(b) the Registrar: ‘‘(c) an incorporated or unincorporated body that— ‘‘(i) A is a director of at the time of the application; or ‘‘(ii) A was a director of at the time of the event that triggers the making of the order under subsection (1): ‘‘(d) the liquidator of an incorporated or unincorporated body referred to in paragraph (c): ‘‘(e) a person who is, or has been, a security holder or creditor of an incorporated or unincorporated body referred to in paragraph (c). ‘‘60B Terms of management banning orders A management banning order may prohibit or restrict the person (without the leave of the Court) from being a director or promoter of, or in any way (whether directly or indirectly) being concerned or taking part in the management of, an incorporated or unincorporated body for a period stated in the order of 10 years or less. ‘‘60C Offence of contravening management banning order A person who acts in contravention of a court order under section 60A commits an offence and is liable on conviction on indictment— ‘‘(a) in the case of an individual, to imprisonment for a term not exceeding 3 years or to a fine not exceeding $100,000, or to both: ‘‘(b) in the case of a body corporate, to a fine not exceeding $300,000. ‘‘60D Only one management banning order may be made for same conduct If conduct by a person constitutes grounds for making an order under any 1 or more of section 60A of this Act, section 43F 17 Securities Legislation Part 1 cl 11 of the Securities Markets Act 1988, and section 383 of the Companies Act 1993, proceedings may be brought against that person under any 1 or more of those provisions, but no person is liable to more than 1 order under those provisions for the same conduct. ‘‘60E Persons automatically banned from management ‘‘(1) This section applies to a person if the person has been convicted of an offence against this Act or a pecuniary penalty order has been made against the person under this Act. ‘‘(2) The person must not, for the period of 5 years after the conviction or making of the order (without the leave of the Court) be a director or promoter of, or in any way (whether directly or indirectly) be concerned or take part in the management of, an incorporated or unincorporated body (other than an overseas company or an incorporated or unincorporated body that does not carry on business in New Zealand). ‘‘(3) A person who acts in contravention of this section commits an offence and is liable on conviction on indictment,— ‘‘(a) in the case of an individual, to imprisonment for a term not exceeding 3 years or to a fine not exceeding $100,000, or to both: ‘‘(b) in the case of a body corporate, to a fine not exceeding $300,000. ‘‘60F References in other enactments to management bans in Companies Act 1993 extend to management bans in principal Act ‘‘(1) A reference in any enactment to a person who is prohibited from being a director or promoter of, or being concerned or taking part in the management of, a company under section 382, 383, or 385 of the Companies Act 1993 must be read as extending also to a person who is prohibited from being a director or promoter of, or being concerned or taking part in the management of, an incorporated or unincorporated body under section 60A or 60E. ‘‘(2) This section does not apply if the enactment provides that it does not apply. 18 Part 1 cl 13 Securities Legislation ‘‘General provisions on liability ‘‘60G No pecuniary penalty and fine for same conduct A person cannot be ordered to pay a pecuniary penalty and be liable for a fine under this Act for the same conduct.’’ 12 Heading above section 65A amended The heading above section 65A of the principal Act is amended by omitting the word ‘‘General’’, and substituting the words ‘‘Other general’’. Amendments to investigation and enforcement powers 13 New sections 69B, 69BA, and 69C substituted The principal Act is amended by repealing sections 69B and 69C, and substituting the following sections: ‘‘69B Who may receive evidence ‘‘(1) The Commission may receive evidence through a member, officer, or employee of the Commission, or any 2 or more of them. ‘‘(2) However, if a person who is summoned to give evidence under section 69D requests that the evidence be received by a meeting of the Commission, then— ‘‘(a) subsection (1) does not apply, and the evidence must be received at a meeting of the Commission; and ‘‘(b) the meeting must not be held by a method under section 15(2A)(b) except with the consent of the person summoned. ‘‘69BA Admissibility of evidence The Commission may receive in evidence, whether admissible in a court of law or not, any statement, document, information, or matter that— ‘‘(a) in the opinion of the person receiving it, may assist the Commission in dealing effectively with any matter before it; or ‘‘(b) the Commission may receive under section 69F. ‘‘69C How evidence may be given ‘‘(1) The Commission may receive evidence— ‘‘(a) given on oath: ‘‘(b) given not on oath: 19 Securities Legislation Part 1 cl 13 ‘‘(c) if the person receiving the evidence permits it, given by a written statement: ‘‘(d) if the person receiving evidence permits it, given by a written statement verified on oath: ‘‘(e) given by audio-visual communication, if the Commission and the person giving the evidence agree. ‘‘(2) A member, officer, or an employee of the Commission may administer an oath for the purpose of a person giving evidence on oath.’’ 14 Power to summon witnesses (1) Section 69D of the principal Act is amended by repealing subsection (1), and substituting the following subsection: ‘‘(1) A member of the Commission may issue a summons to a person requiring that person to appear (in the case of a body corporate, to appear by its authorised representative) before the Commission, or a member, officer, or employee of the Commission, in relation to any matter before the Commission and to do any of the following things: ‘‘(a) give evidence: ‘‘(b) give evidence under oath: ‘‘(c) provide any documents or information that are now in the person’s possession or control and that are relevant to the matter.’’ (2) Section 69D(2) of the principal Act is amended by repealing paragraph (c), and substituting the following paragraph: ‘‘(c) the person’s right to request that the person give evidence at a meeting of the Commission; and’’. (3) Section 69D of the principal Act is amended by repealing subsection (3), and substituting the following subsection: ‘‘(3) A summons may be served— ‘‘(a) in the case of a natural person, by delivering it personally to the person summoned or by leaving it at his or her usual place of residence or business at least 24 hours before his or her attendance is required: ‘‘(b) in the case of a body corporate, by leaving it at the body corporate’s usual place of business at least 24 hours before its attendance is required.’’ 20 Part 1 cl 16 Securities Legislation 15 New section 69U substituted The principal Act is amended by repealing section 69U, and substituting the following section: ‘‘69U Restrictions on use of self-incriminating statements obtained by summons ‘‘(1) A self-incriminating statement made orally by a person summoned under section 69D (whether or not the statement is recorded in writing) in the course of answering any question before, or providing any information or document to, the Commission, or a member, officer, or employee of the Commission, is not admissible as evidence in— ‘‘(a) criminal proceedings against that person; or ‘‘(b) proceedings under this Act or the Securities Markets Act 1988 for a pecuniary penalty order against that person. ‘‘(2) However, a statement of that kind is admissible in evidence in proceedings where the person gives evidence inconsistent with the statement. ‘‘(3) In addition,— ‘‘(a) a refusal or failure to answer a question or provide information or a document or comply with any other requirement may be used in evidence against that person in proceedings for an offence under section 59A(1) arising from that refusal or failure; and ‘‘(b) the answering of a question in a way that is deceptive or misleading or the providing of information or a document that is deceptive or misleading may be used in evidence against that person in proceedings for an offence under section 59A(1) arising from that act.’’ Amendments to regulation empowering provisions 16 New sections 70AA to 70AAF inserted The principal Act is amended by inserting, after section 70, the following sections: ‘‘70AA Regulations may require compliance with generally accepted accounting practice and incorporate financial reporting standards by reference ‘‘(1) Regulations may— ‘‘(a) require any person, class of persons, information, or class of information to comply with generally accepted 21 Securities Legislation Part 1 cl 16 accounting practice either generally or in specified circumstances; and ‘‘(b) incorporate by reference any approved financial reporting standard. ‘‘(2) Regulations may require compliance with generally accepted accounting practice or incorporate material by reference— ‘‘(a) in whole or in part; and ‘‘(b) with modifications, additions, or variations specified in the regulations. ‘‘(3) Material incorporated by reference in regulations has legal effect as part of the regulations. ‘‘(4) In this section and in sections 70AAB to 70AAF,— ‘‘approved financial reporting standard has the same meaning as in section 2(1) of the Financial Reporting Act 1993 ‘‘chief executive means the chief executive of the Ministry ‘‘generally accepted accounting practice has the same meaning as in section 3 of the Financial Reporting Act 1993 ‘‘material incorporated by reference means any particular approved financial reporting standard that is incorporated by reference under subsection (1)(b) ‘‘Ministry means the department of State that, with the authority of the Prime Minister, is responsible for the administration of this Act. ‘‘70AAB Effect of amendments to, or replacement of, material incorporated by reference in regulations An amendment to, or replacement of, material incorporated by reference in regulations (regulations A) has legal effect as part of regulations A. ‘‘70AAC Access to material incorporated by reference ‘‘(1) The chief executive must— ‘‘(a) make the material referred to in subsection (3) (material) available for inspection during working hours free of ‘‘(b) make copies of the material available for purchase at a charge at the head office of the Ministry; and reasonable price at the head office of the Ministry; and ‘‘(c) to the extent that there is no legal impediment to doing so, make copies of the material available, free of charge 22 Part 1 cl 16 Securities Legislation and at all reasonable times, on or through an Internet website maintained by or on behalf of the Ministry (for ‘‘(d) give notice in the Gazette stating that— example, through a hypertext link); and ‘‘(i) the material is incorporated in the regulations and the date on which the regulations were made; and ‘‘(ii) the material is available for inspection during working hours free of charge and the place at which it can be inspected; and ‘‘(iii) copies of the material can be purchased and the place at which they can be purchased; and ‘‘(iv) if applicable, the material is available on the Internet, free of charge, and stating the website address. ‘‘(2) The chief executive must comply with subsection (1) as soon as practicable after an approved financial reporting standard is incorporated by reference under section 70AA(1)(b). ‘‘(3) The material is— ‘‘(a) material incorporated by reference in regulations; and ‘‘(b) either— ‘‘(i) any amendment to, or replacement of, the material referred to in paragraph (a); or ‘‘(ii) the material referred to in paragraph (a) with the amendments or replacement material amalgamated within it. ‘‘(4) A failure to comply with this section does not invalidate regulations that incorporate material by reference. ‘‘70AAD Acts and Regulations Publication Act 1989 not applicable to material incorporated by reference The Acts and Regulations Publication Act 1989 does not apply to material incorporated by reference in regulations or to an amendment to, or replacement of, that material. ‘‘70AAE Application of Regulations (Disallowance) Act 1989 to material incorporated by reference ‘‘(1) Nothing in section 4 of the Regulations (Disallowance) Act 1989 requires material that is incorporated by reference in regulations to be laid before the House of Representatives. 23 Securities Legislation Part 1 cl 16 ‘‘(2) Except as set out in subsection (1), the Regulations (Disallowance) Act 1989 applies to regulations that incorporate material by reference. ‘‘70AAF Application of Standards Act 1988 not affected Sections 70AA to 70AAE do not affect the application of sections 22 to 25 of the Standards Act 1988.’’ Transitional validation relating to Securities Amendment Act 2004 17 Transitional validation for small employer superannuation schemes (1) Nothing in sections 37, 37A(1)(c), and 39 to 44 of the principal Act applied in respect of any interest in a small employer superannuation scheme on and from 15 April 2004 until the close of 23 October 2004. (2) During that period, the investment statement for a small employer superannuation scheme did not have to contain the statement required by clause 1(2) of Schedule 3D of the Securities Regulations 1983, as in force on 15 April 2004, if it instead contained the statement required by that clause as in force immediately before 15 April 2004. (3) In this section, small employer superannuation scheme has the meaning set out in regulation 2C of the Securities Regulations 1983, as in force immediately before 15 April 2004 (the date on which the Securities Amendment Act 2004 came into force). Transitional provision 18 Transitional provision for existing offences and contraventions (1) The principal Act continues to have effect as if it were not amended by this subpart for the purpose of— (a) investigating an existing offence or contravention: (b) commencing or completing proceedings for an existing offence or contravention: (c) imposing a penalty or other remedy, or making an order, in relation to an existing offence or contravention. 24 Part 1 cl 20 Securities Legislation (2) In this section, existing offence or contravention means an offence under, or contravention of, the principal Act that was committed or done before the commencement of this subpart. Subpart 2—Amendments to Securities Markets Act 1988 19 Securities Markets Act 1988 called principal Act in this subpart In this subpart, the Securities Markets Act 19882 is called ‘‘the principal Act’’. 2 1988 No 234 Amendments to interpretation 20 New sections 2 to 6 substituted The principal Act is amended by repealing sections 2 to 6A, and substituting the following sections: ‘‘2 Interpretation ‘‘(1) In this Act, unless the context otherwise requires,— ‘‘acquire— ‘‘(a) includes obtain by buying or subscribing; and ‘‘(b) includes agree to acquire ‘‘advice advertisement means a form of communication that— ‘‘(a) contains or refers to investment advice or is reasonably likely to induce persons to seek investment advice; and ‘‘(b) is authorised or instigated by, or on behalf of, an investment adviser or prepared with the co-operation of, or by arrangement with, an investment adviser; and ‘‘(c) is to be, or has been, distributed to a person ‘‘broker advertisement means a form of communication that— ‘‘(a) refers to an investment broker or is reasonably likely to induce persons to seek an investment broker service; and ‘‘(b) is authorised or instigated by, or on behalf of, an investment broker or prepared with the co-operation of, or by arrangement with, an investment broker; and ‘‘(c) is to be, or has been, distributed to a person 25 Securities Legislation Part 1 cl 20 ‘‘business includes any profession, trade, or undertaking, whether or not carried on with the intention of making a pecuniary profit ‘‘business rules means the rules made by a securities exchange that govern the conduct of— ‘‘(a) business on securities markets operated by the securities exchange: ‘‘(b) persons authorised to undertake trading activities on those securities markets ‘‘chief executive means the chief executive of the department that, with the authority of the Prime Minister, is for the time being responsible for the administration of this Act ‘‘civil remedy order has the meaning set out in section 42T ‘‘civil remedy provision has the meaning set out in section 42U ‘‘class, in relation to securities, means a class of securities having attached to them identical rights, privileges, limitations, and conditions ‘‘Commission means the Securities Commission established under the Securities Act 1978 ‘‘company means a company, or an overseas company, within the meaning of section 2(1) of the Companies Act 1993 ‘‘conduct rules means the business rules and the listing rules of a securities exchange ‘‘consideration includes consideration other than money ‘‘continuous disclosure direction has the meaning set out in section 36ZP ‘‘continuous disclosure exemption means,— ‘‘(a) if section 19C does not apply to an exchange, an exemption or waiver of a continuous disclosure provision or provisions of the registered exchange’s listing rules; or ‘‘(b) if section 19C applies to an exchange, an exemption from a provision or provisions of regulations made under section 48E that apply to that exchange ‘‘continuous disclosure obligation means section 19B or section 19C (whichever is applicable) and any listing rules or regulations with which either of those sections requires compliance 26 Part 1 cl 20 Securities Legislation ‘‘continuous disclosure provisions has the meaning set out in section 19D ‘‘control, in subpart 1 of Part 2B, has the meaning set out in section 36S ‘‘co-operative company means a company that is registered as a co-operative company under the Co-operative Companies Act 1996 ‘‘Court means, in relation to any matter, the Court before which the matter is to be determined ‘‘director means— ‘‘(a) in relation to a company, any person occupying the position of a director of the company by whatever name called: ‘‘(b) in relation to a partnership (other than a special partnership), any partner: ‘‘(c) in relation to a special partnership, any general partner: ‘‘(d) in relation to a body corporate or unincorporate, other than a company, partnership, or special partnership, any person occupying a position in the body that is comparable with that of a director of a company: ‘‘(e) in relation to any other person, that person ‘‘directors’ and officers’ disclosure obligation means any of sections 19T to 19V and any regulations with which those sections require compliance ‘‘dispose of— ‘‘(a) includes dispose of by selling, allotting, withdrawing from, or terminating; and ‘‘(b) includes agree to dispose of ‘‘distribute includes— ‘‘(a) make available, publish, and circulate; and ‘‘(b) communicate by letter, newspaper, broadcasting, sound recording, television, cinematographic film, video, or any form of electronic or other means of communication ‘‘document means any record of information; and includes— ‘‘(a) anything on which there is writing or any image; and ‘‘(b) information recorded by means of any article or device (for example, a disk) from which information is capable of being reproduced with or without the aid of any other article or device; and 27 Securities Legislation Part 1 cl 20 ‘‘(c) material subsequently derived from information recorded by that means ‘‘general dealing misconduct prohibition means section 13 ‘‘generally available to the market has the meaning set out in section 4 ‘‘holding company has the same meaning as in sections 5 and 6 of the Companies Act 1993 ‘‘information insider has the meaning set out in section 8A ‘‘inside information has the meaning set out in section 8B ‘‘insider conduct prohibition means any of sections 8C to 8E ‘‘investment advice and advice— ‘‘(a) mean a recommendation, opinion, or guidance given to a member of the public in relation to acquiring or disposing of (or not acquiring or disposing of) securities; and ‘‘(b) include any such recommendation, opinion, or guidance that is communicated by letter, newspaper, periodical, broadcasting, sound recording, television, cinematographic film, video, or any form of electronic or other means of communication; but— ‘‘(c) do not include— ‘‘(i) any such recommendation, opinion, or guidance given by a person whose principal occupation is that of a journalist and that is given in that person’s capacity as a journalist; or ‘‘(ii) any such guidance about the procedure for taking any of the steps referred to in paragraph (a); or ‘‘(iii) any of the following: ‘‘(A) a prospectus; or ‘‘(B) an investment statement; or ‘‘(C) an authorised advertisement; or ‘‘(D) a bank disclosure statement ‘‘investment adviser and adviser— ‘‘(a) mean a person (whether or not the person is also an investment broker) who, in the course of the person’s business or employment, gives investment advice; and ‘‘(b) if a person is giving investment advice in the course of his or her employment, include both that person and his or her employer; but 28 Part 1 cl 20 Securities Legislation ‘‘(c) do not include an issuer or a promoter or a trustee (within the meaning of the Securities Act 1978 or the Unit Trusts Act 1960) or a statutory supervisor (within the meaning of the Securities Act 1978), of the particular securities to which the advice relates; but do include an employee or agent of, or person otherwise associated with, that issuer, promoter, trustee, or statutory supervisor if the employee, agent, or person associated falls within paragraph (a); and ‘‘(d) do not include a person who only transmits investment advice relating to particular securities given by the issuer or a promoter or a trustee (within the meaning of the Securities Act 1978 or the Unit Trusts Act 1960) or a statutory supervisor (within the meaning of the Securities Act 1978) of those securities ‘‘investment advisers’ disclosure obligations means any of sections 41B to 41G and sections 41K to 41O and any regulations with which those sections require compliance, and investment advisers’ obligations means those sections and regulations and sections 41P and 41T ‘‘investment broker and broker— ‘‘(a) mean a person (whether or not the person is also an investment adviser) who, in the course of the person’s business or employment, receives investment money or investment property; and ‘‘(b) if a person is receiving such investment money or investment property in the course of his or her employment, include both that person and his or her employer; but ‘‘(c) do not include, in relation to a security to which the investment money or investment property relates,— ‘‘(i) an issuer or a trustee (within the meaning of the Securities Act 1978 or the Unit Trusts Act 1960); or ‘‘(ii) a nominated person of a trustee (within the meaning of the Unit Trusts Act 1960); or ‘‘(iii) a nominee of a nominated person of a trustee (within the meaning of the Unit Trusts Act 1960); or ‘‘(iv) a statutory supervisor (within the meaning of the Securities Act 1978); or 29 Securities Legislation Part 1 cl 20 ‘‘(v) a security registrar appointed by the issuer— of a security to which the investment money or investment property relates; and ‘‘(d) do not include a person who only transmits investment money or investment property to a person to whom paragraph (c) applies without being able to apply the money or property for any other purpose ‘‘investment brokers’ disclosure obligations means any of sections 41H to 41O and any regulations with which those sections require compliance, and investment brokers’ obligations means those sections and regulations and sections 41P and 41T ‘‘investment brokers service means the receipt of investment money or investment property by an investment broker ‘‘investment money and money, in relation to an investment broker, mean any money received from, or on account of, a member of the public in relation to acquiring or disposing of securities ‘‘investment property and property, in relation to an investment broker, mean security certificates or other valuable property received from, or on account of, a member of the public in relation to acquiring or disposing of securities ‘‘listed, in relation to securities of a public issuer, means securities of the issuer that are approved for trading on the relevant registered exchange’s market (and, for the avoidance of doubt, securities do not cease to be listed merely because trading in those securities is suspended) ‘‘listing rules means the rules made by a securities exchange that relate to— ‘‘(a) the governance of the persons who are parties to listing agreements with the securities exchange; and ‘‘(b) the entry into, and revocation of, those listing agreements ‘‘market manipulation prohibition means either of sections 11 and 11B ‘‘material information has the meaning set out in section 3, in relation to a public issuer, and in section 3A, in relation to a futures contract ‘‘Minister means the Minister of the Crown who, under the authority of any warrant or with the authority of the Prime 30 Part 1 cl 20 Securities Legislation Minister, is for the time being responsible for the administration of this Act ‘‘non-listed securities means securities that are not listed ‘‘officer, for the purposes of Part 2 in relation to a public issuer,— ‘‘(a) means a person, however designated, who is concerned or takes part in the management of the public issuer’s business; but ‘‘(b) excludes any class or classes of persons that are declared by regulations not to be officers for the purposes of this definition ‘‘operate, in relation to a securities market, includes control the operation of that market ‘‘prescribed means prescribed by regulations made under this Act ‘‘principal officer, in relation to a body corporate or other body, means— ‘‘(a) a director of the body; or ‘‘(b) a person in accordance with whose directions or instructions any or all of the directors of the body are accustomed to act (but a person is not a principal officer under this paragraph merely because the directors act on advice given by that person solely in a professional capacity) ‘‘product advertisement means a form of communication that— ‘‘(a) contains or refers to an offer of securities (as defined in section 4.2, and including derivatives) to the public for subscription, or is reasonably likely to induce persons to subscribe for those securities, being securities to which the communication relates and that have been, or are to be, offered to the public for subscription; and ‘‘(b) is authorised or instigated by, or on behalf of, an investment adviser or prepared with the co-operation of, or by arrangement with, an investment adviser; and ‘‘(c) is to be, or has been, distributed to a person ‘‘public issuer means— ‘‘(a) a person who is a party to a listing agreement with a registered exchange: 31 Securities Legislation Part 1 cl 20 ‘‘(b) a person who was previously a party to a listing agreement with a registered exchange, in respect of any action or event or circumstance to which this Act applied while the person was a party to a listing agreement with a registered exchange ‘‘registered exchange means,— ‘‘(a) a body corporate registered under section 36F: ‘‘(b) a body corporate that is treated as if it were registered as a registered exchange under section 36X(3): ‘‘(c) a subsidiary of a registered exchange if the subsidiary operates a securities market ‘‘registered exchange’s market means a securities market operated by a registered exchange ‘‘relevant event means an event that results in a person having to disclose matters under sections 22 to 25 ‘‘relevant interest has the meaning set out in sections 5 to 5B ‘‘securities exchange means a body corporate that operates a securities market ‘‘securities market means a market, exchange, or other facility for trading securities ‘‘security— ‘‘(a) means— ‘‘(i) any interest in, or right to participate in, any capital, assets, earnings, royalties, or other property of any person: ‘‘(ii) any interest in, or right to be paid, money that is, or is to be, deposited with, lent to, or otherwise owing by, any person (whether or not the interest or right is secured by a charge over any property): ‘‘(iii) any renewal or variation of the terms or conditions of any existing security; but ‘‘(b) has a modified meaning in Part 1 (and in Part 5 when Part 5 is applied to a contravention of Part 1) under section 7; and ‘‘(c) has a more limited meaning in Part 4 under section 41A ‘‘subsidiary has the same meaning as in sections 5 and 6 of the Companies Act 1993 ‘‘substantial holding has the meaning set out in section 21 32 Part 1 cl 20 Securities Legislation ‘‘substantial holding disclosure obligation means any of sections 22 to 27, and 34 to 35A and any regulations with which those sections require compliance ‘‘substantial security holder has the meaning set out in section 21 ‘‘Takeovers Act means the Takeovers Act 1993 ‘‘takeovers code means the takeovers code in force under the Takeovers Act ‘‘trading day means a day during which securities are traded on a registered exchange ‘‘transacting shareholder has the same meaning as in section 4 of the Co-operative Companies Act 1996 ‘‘trustee corporation means Public Trust or the Maori Trustee or any corporation authorised by any Act to administer the estates of deceased persons and other trust estates ‘‘voting right, in subpart 1 of Part 2B, has the meaning set out in section 36S ‘‘voting security, in relation to a public issuer or other body,— ‘‘(a) means a security of the public issuer or body that confers a right to vote at meetings of members or shareholders (whether or not there is any restriction or limitation on the number of votes that may be cast by or on ‘‘(b) includes a security that is convertible into a security of behalf of the holder of the security); and that kind; but ‘‘(c) excludes a security that confers only a right to vote that, under the conditions attached to the security, is exercisable only in 1 or more of the following circumstances: ‘‘(i) during a period in which a dividend (or part of a dividend) in respect of the security is in arrears: ‘‘(ii) on a proposal to reduce the capital of the public issuer or body: ‘‘(iii) on a proposal that affects rights attached to the security: ‘‘(iv) on a proposal to put the public issuer or body into liquidation: ‘‘(v) on a proposal for the disposal of the whole of the property, business, and undertaking of the public issuer or body: 33 Securities Legislation Part 1 cl 20 ‘‘(vi) during the liquidation of the public issuer or body. ‘‘(2) For the purposes of this Act, unless the context otherwise requires, associated persons or persons associated with each other are— ‘‘(a) persons who are relatives within the meaning of the Income Tax Act 1994 or de facto partners within the meaning of the Property (Relationships) Act 1976; or ‘‘(b) persons who are partners to whom the Partnership Act 1908 applies; or ‘‘(c) bodies corporate that consist substantially of the same shareholders or are under the control of the same persons; or ‘‘(d) a body corporate and a person who has the power, directly or indirectly, to exercise, or control the exercise of, the right to vote attached to 25% or more of the voting securities of the body corporate; or ‘‘(e) a body corporate and a person who is a director or principal officer of the body corporate. ‘‘(3) Any term or expression that is defined in the Securities Act 1978 and used, but not defined, in this Act has the same meaning as in the Securities Act 1978. ‘‘3 What is material information in relation to public issuer ‘‘(1) For the purposes of this Act, unless the context otherwise requires, material information, in relation to a public issuer but not in relation to a futures contract (see section 3A), is information that— ‘‘(a) a reasonable person would expect, if it were generally available to the market, to have a material effect on the price or value of listed securities of the public issuer; and ‘‘(b) relates to particular securities, a particular public issuer, or particular public issuers, rather than to securities generally or public issuers generally. ‘‘(2) For the purposes of subsection (1), a reasonable person would be taken to expect information to have a material effect on the price or value of listed securities of a public issuer if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of those listed securities. 34 Part 1 cl 20 Securities Legislation ‘‘(3) For the avoidance of doubt, subsection (2) does not limit what information a reasonable person would expect to have that effect. ‘‘3A What is material information in relation to futures contract ‘‘(1) For the purposes of this Act, unless the context otherwise requires, material information in relation to a futures contract that is listed for trading on an authorised futures exchange is information that— ‘‘(a) a reasonable person would expect, if it were generally available to the market, to have a material effect on the value of the futures contract; and ‘‘(b) relates to the particular futures contract, rather than to futures contracts generally. ‘‘(2) For the purposes of subsection (1), a reasonable person would be taken to expect information to have a material effect on the value of a futures contract if the information would, or would be likely to, influence persons who commonly invest in futures contracts in deciding whether to acquire or dispose of the futures contract. ‘‘(3) For the avoidance of doubt, subsection (2) does not limit what information a reasonable person would expect to have that effect. ‘‘4 What information is generally available to the market ‘‘(1) For the purposes of this Act, unless the context otherwise requires, information is generally available to the market— ‘‘(a) if— ‘‘(i) it is information that has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in relevant securities; and ‘‘(ii) since it was made known, a reasonable period for it to be disseminated among those persons has expired; or ‘‘(b) if it is likely that persons who commonly invest in relevant securities can readily obtain the information (whether by observation, use of expertise, purchase from other persons, or any other means); or 35 Securities Legislation Part 1 cl 20 ‘‘(c) if it is information that consists of deductions, conclusions, or inferences made or drawn from either or both of the kinds of information referred to in paragraphs (a) and (b). ‘‘(2) In this section, relevant securities means securities of a kind the price or value of which might reasonably be expected to be affected by the information. ‘‘5 Relevant interests in securities (basic rule) ‘‘(1) A person has a relevant interest in a security if the person— ‘‘(a) is a registered holder of the security; or ‘‘(b) is a beneficial owner of the security; or ‘‘(c) has the power to exercise, or to control the exercise of, a right to vote attached to the security; or ‘‘(d) has the power to acquire or dispose of, or to control the acquisition or disposition of, the security. ‘‘(2) It does not matter whether the power or control is express or implied, direct or indirect, legally enforceable or not, related to a particular security or not, exercisable presently or in the future, or exercisable alone or jointly with another person or persons (but a power to cast merely 1 of many votes is not, in itself, a joint power of this kind). ‘‘(3) It also does not matter whether or not the power or control is or can be made subject to restraint or restriction or is exercisable only on the fulfilment of a condition. ‘‘(4) If 2 or more persons can jointly exercise a power, each of them is taken to have that power. ‘‘5A Extension of basic rule to powers or controls exercisable through trust, agreement, practice, etc ‘‘(1) A person has a power or control referred to in section 5 if the power or control is, or may at any time be, exercised under, by virtue of, by means of, or as a result of a revocation or breach of, a trust, agreement, arrangement, understanding, or practice (or any combination of them). ‘‘(2) It does not matter whether or not the trust, agreement, arrangement, understanding, or practice is legally enforceable or whether or not the person is a party to it. ‘‘(3) In this section, practice includes market practice and persons’ practices in dealing with each other. 36 Part 1 cl 20 Securities Legislation ‘‘5B Extension of basic rule to interests held by other persons under control or acting jointly ‘‘(1) A person (A) has the relevant interests in securities that another person (B) has if— ‘‘(a) B or B’s directors are accustomed or under an obligation (whether legally enforceable or not) to act in accordance with A’s directions, instructions, or wishes in relation to a power or control referred to in section 5; or ‘‘(b) A has the power to exercise, or control the exercise of, the right to vote attached to 20% or more of the securities of B; or ‘‘(c) A has the power to acquire or dispose of, or to control the acquisition or disposition of, 20% or more of the securities of B; or ‘‘(d) A and B are related bodies corporate; or ‘‘(e) A and B have an agreement, arrangement, or understanding to act in concert in relation to a power or control referred to in section 5. ‘‘(2) For the purposes of this Act, a body corporate (A) is related to another body corporate (B) if— ‘‘(a) B is A’s holding company or subsidiary within the meaning of sections 5 and 6 of the Companies Act 1993; or ‘‘(b) more than half of A’s issued shares (other than shares that carry no right to participate beyond a specified amount in a distribution of either profits or capital) is held by B and bodies corporate related to B (whether directly or indirectly, but other than in a fiduciary capacity); or ‘‘(c) more than half of the issued shares (other than shares that carry no right to participate beyond a specified amount in a distribution of either profits or capital) of each of A and B is held by members of the other (whether directly or indirectly, but other than in a fiduciary capacity); or ‘‘(d) the businesses of A and B have been so carried on that the separate business of each body corporate, or a substantial part of that business, is not readily identifiable; or ‘‘(e) there is another body corporate to which A and B are both related. 37 Securities Legislation Part 1 cl 20 ‘‘6 Situations not giving rise to relevant interests ‘‘(1) A person (A) does not have a relevant interest in securities under sections 5 to 5B merely because— ‘‘(a) the ordinary business of A consists of, or includes, the lending of money or the provision of financial services, or both, and A has the relevant interest only as security given for the purposes of a transaction entered into in the ordinary course of the business of A; or ‘‘(b) A is authorised to undertake trading activities on a registered exchange’s market and A acts for another person to acquire or dispose of those securities on behalf of that person in the ordinary course of A’s business of carrying out those trading activities; or ‘‘(c) A has been authorised by resolution of the directors or other governing body of a body corporate to act as its representative at a particular meeting of members, or class of members, of a public issuer, and a copy of the resolution is deposited with the public issuer before the meeting; or ‘‘(d) A is appointed as a proxy to vote at a particular meeting of members, or of a class of members, of the public issuer and the instrument of A’s appointment is deposited with the public issuer before the meeting; or ‘‘(e) A is a bare trustee of a trust to which the security is subject; or ‘‘(f) A is a director of a body corporate and the body corporate has a relevant interest in the security. ‘‘(2) Subsection (1)(a) to (f) does not apply to a person if the person is currently designated by the Commission, by notice in the Gazette under section 48C, as a person that is not exempt under that paragraph. ‘‘(3) For the purposes of subsection (1)(e), a trustee may be a bare trustee even if he or she is entitled as a trustee to be remunerated out of the income or property of the trust.’’ Insertion of new dealing misconduct provisions 21 New Part 1 substituted The principal Act is amended by repealing Part I, and substituting the following Part: 38 Part 1 cl 21 Securities Legislation ‘‘Part 1 ‘‘Dealing misconduct ‘‘Subpart 1—Insider conduct and market manipulation prohibitions ‘‘7 Interpretation of certain terms used in this subpart In this subpart, unless the context otherwise requires,— ‘‘encourage includes incite, counsel, or procure ‘‘security— ‘‘(a) means a security (as defined in section 2(1)) that— ‘‘(i) has been allotted; and ‘‘(ii) is listed on a registered exchange’s market or approved for trading on an authorised futures exchange; and ‘‘(b) means also, in relation to a security of that kind,— ‘‘(i) any form of beneficial interest in the security: ‘‘(ii) the power to exercise any right to vote attached to the security: ‘‘(iii) the power to control the exercise of any right to vote attached to the security: ‘‘(iv) the power to acquire or dispose of the security: ‘‘(v) the power to control the acquisition or disposition of the security by any person: ‘‘(vi) any power which may exist or arise at any time under any trust, agreement, arrangement, or understanding relating to the security to— ‘‘(A) exercise the right to vote attached to the security; or ‘‘(B) control the exercise of the right to vote attached to the security; or ‘‘(C) acquire or dispose of the security; or ‘‘(D) control the acquisition or disposition of the security by any person; and ‘‘(c) does not include a previously allotted security offered to the public in accordance with section 6 of the Securities Act 1978 ‘‘trade— ‘‘(a) means acquire or dispose of; but ‘‘(b) does not include acquire, or dispose of, by inheritance or gift. 39 Securities Legislation Part 1 cl 21 ‘‘Insider conduct prohibited ‘‘8 Prohibition of insider conduct A person must not do any of the things set out in sections 8C to 8E if that person is an information insider of the public issuer. ‘‘8A Who is information insider ‘‘(1) A person is an information insider of a public issuer if that person— ‘‘(a) has material information relating to the public issuer that is not generally available to the market; and ‘‘(b) knows or ought reasonably to know that the information is material information; and ‘‘(c) knows or ought reasonably to know that the information is not generally available to the market. ‘‘(2) A public issuer may be an information insider of itself. ‘‘8B Meaning of inside information In this subpart, inside information means the information in respect of which a person is an information insider of the public issuer in question. ‘‘8C Information insider must not trade An information insider of a public issuer must not trade securities of the public issuer. ‘‘8D Information insider must not disclose inside information An information insider (A) of a public issuer must not directly or indirectly disclose inside information to another person (B) if A knows or ought reasonably to know that B will, or is likely to,— ‘‘(a) trade securities of the public issuer; or ‘‘(b) if B is already a holder of those securities, continue to hold them; or ‘‘(c) advise or encourage another person (C) to trade or hold them. ‘‘8E Information insider must not advise or encourage trading An information insider (A) of a public issuer must not— ‘‘(a) advise or encourage another person (B) to trade or hold securities of the public issuer: 40 Part 1 cl 21 Securities Legislation ‘‘(b) advise or encourage B to advise or encourage another person (C) to trade or hold those securities. ‘‘8F Criminal liability for insider conduct A person who contravenes any of sections 8C to 8E commits an offence (see section 43 for the maximum penalty of 5 years’ imprisonment and a $300,000 fine for an individual or a $1,000,000 fine for a body corporate) if the person has actual knowledge— ‘‘(a) that the information is material information; and ‘‘(b) that the information is not generally available to the market; and ‘‘(c) in the case of a contravention of section 8D, of any of the matters set out in section 8D(a) to (c). ‘‘When prohibition on insider conduct does not apply ‘‘9 Exception for trading required by enactment Section 8C does not apply to trading in securities that is required by an enactment. ‘‘9A Exception for disclosure required by enactment Section 8D does not apply to disclosure that is required by an enactment. ‘‘9B Exceptions in respect of underwriting agreements ‘‘(1) Section 8C does not apply to a person who acquires the securities of a public issuer under an underwriting or sub-underwriting agreement. ‘‘(2) Section 8D does not apply if the inside information is disclosed to a person for the sole purpose of negotiating an underwriting or sub-underwriting agreement with that person in respect of the securities in question. ‘‘(3) Section 8E does not apply if the advice or encouragement is given for the sole purpose of persuading the person to whom it is given to enter into an underwriting or sub-underwriting agreement in respect of the securities in question. 41 Securities Legislation Part 1 cl 21 ‘‘9C Exception in case of knowledge of person’s own intentions or activities ‘‘(1) A person (A) does not contravene section 8C merely because A trades the securities with the knowledge that A proposes to enter into, or has previously entered into, 1 or more transactions or agreements in relation to the securities. ‘‘(2) A person (B), who is an officer or agent of A acting on A’s behalf in trading the securities, does not contravene section 8C merely because B knows that A proposes to enter into, or has previously entered into, 1 or more transactions or agreements in relation to the securities, if B acquired that knowledge in the performance of B’s duties as an officer of A or in the course of acting as A’s agent. ‘‘9D Exception for agent executing trading instruction only Section 8C does not apply in the case of a person (A) if— ‘‘(a) in trading the securities A was acting on behalf of another person (B); and ‘‘(b) A traded the securities on B’s specific instruction; and ‘‘(c) before trading, A did not disclose inside information to B; and ‘‘(d) A did not advise or encourage B to instruct A to trade. ‘‘9E Exceptions for takeovers ‘‘(1) Section 8C does not apply to an acquisition of securities that results from a takeover offer made by an information insider under any takeovers code that is in force under the Takeovers Act 1993. ‘‘(2) Sections 8D and 8E do not apply if the inside information is disclosed, or the advice or encouragement given, as part of a takeover offer made by an information insider under any takeovers code that is in force under the Takeovers Act 1993. ‘‘9F Exception for redemption of units in unit trust Section 8C does not apply to the redemption of units in a unit trust if the redemption price for each unit is calculated by reference to the underlying value of the assets of the financial business or undertaking of the scheme. 42 Part 1 cl 21 Securities Legislation ‘‘9G Exception for Reserve Bank Section 8C does not apply to trading by the Reserve Bank of New Zealand in securities issued by the Reserve Bank of New Zealand or by the Crown. ‘‘Affirmative defences ‘‘10 Absence of knowledge of trading In any proceeding against a person (A) for contravention of section 8C, it is a defence if A proves on a balance of probabilities that A did not know, and could not reasonably be expected to know, that A traded the securities. ‘‘10A Inside information obtained by independent research and analysis ‘‘(1) In any proceeding against a person (A) for contravention of sections 8C or section 8D, it is a defence if A proves on a balance of probabilities that the inside information was obtained by research and analysis, and was not obtained directly or indirectly from the public issuer concerned. ‘‘(2) In subsection (1), research means planned investigation undertaken to gain new knowledge and understanding. ‘‘10B Equal information ‘‘(1) In any proceeding against a person (A) for contravention of section 8C, it is a defence if A proves on a balance of probabilities that the opposite party to the transaction knew, or ought reasonably to have known, the same inside information as A before entering into the transaction. ‘‘(2) In any proceeding against a person (A) for contravention of section 8D, in a case where the securities of the public issuer have been traded as a result of A’s disclosure of inside information to B, it is a defence if A proves on a balance of probabilities that the opposite party to the transaction knew, or ought reasonably to have known, the same inside information as A before entering into the transaction. ‘‘10C Options and trading plans ‘‘(1) In any proceeding against a person (A) for contravention of section 8C, it is a defence if A proves on a balance of probabilities that— 43 Securities Legislation Part 1 cl 21 ‘‘(a) A traded the securities under a fixed trading plan or by exercise of fixed price delivery options; and ‘‘(b) A entered into the trading plan, or acquired the options, as the case may be,— ‘‘(i) before A obtained the inside information; and ‘‘(ii) without any intent to evade section 8C. ‘‘(2) A fixed trading plan is a trading plan that— ‘‘(a) is fixed for a period of time; and ‘‘(b) gives the investor no right to withdraw before the end of that period; and ‘‘(c) is not subject to any influence by the investor as to trading decisions after the plan has begun. ‘‘10D Chinese wall defence ‘‘(1) In any proceeding against a person (A) for contravention of any of sections 8C to 8E, it is a defence if A proves on a balance of probabilities that— ‘‘(a) arrangements existed that could reasonably be expected to ensure that no individual who took part in the active decision received, or had access to, the inside information or was influenced, in relation to that decision, by an individual who had the information; and ‘‘(b) no individual who took part in the active decision received, or had access to, the inside information or was influenced, in relation to that decision, by an individual who had the information; and ‘‘(c) every individual who had the information and every individual who took part in the active decision acted in accordance with the arrangements referred to in paragraph (a). ‘‘(2) In subsection (1), active decision means the decision to trade the securities or disclose the inside information or advise or encourage, as the case may be. ‘‘Market manipulation ‘‘11 False or misleading statement or information A person must not make a statement or disseminate information if— ‘‘(a) a material aspect of the statement or information is false or the statement or information is materially misleading; and 44 Part 1 cl 21 Securities Legislation ‘‘(b) the person knows or ought reasonably to know that a material aspect of the statement or information is false or that the statement or information is materially misleading; and ‘‘(c) the statement or information is likely to— ‘‘(i) induce a person to trade in the securities of a public issuer; or ‘‘(ii) have the effect of increasing, reducing, maintaining, or stabilising the price for trading in those securities. ‘‘11A Criminal liability for false or misleading statement or information A person who contravenes section 11 commits an offence (see section 43 for the maximum penalty of 5 years’ imprisonment and a $300,000 fine for an individual or a $1,000,000 fine for a body corporate) if the person has actual knowledge that the statement or information is false in a material aspect or is materially misleading. ‘‘11B False or misleading appearance of trading, etc A person must not do, or omit to do, anything if— ‘‘(a) the act or omission will have, or is likely to have, the effect of creating, or causing the creation of, a false or misleading appearance— ‘‘(i) with respect to the extent of active trading in the securities of a public issuer; or ‘‘(ii) with respect to the supply of, demand for, price for trading in, or value of those securities; and ‘‘(b) the person knows or ought reasonably to know that the person’s act or omission will, or is likely to have, that effect. ‘‘11C Presumption as to false or misleading appearance of trading, etc ‘‘(1) A person (A) is presumed to contravene section 11B if A is directly or indirectly a party to trading in the securities of a public issuer from which no change in beneficial ownership results. 45 Securities Legislation Part 1 cl 21 ‘‘(2) A person (A) is also presumed to contravene section 11B if— ‘‘(a) A has made an offer to trade the securities of a public issuer; and ‘‘(b) either A or, to A’s knowledge, A’s associate, has made or proposes to make an offer (the corresponding offer) to trade the securities; and ‘‘(c) the corresponding offer substantially matches A’s offer as to the number and price of the securities. ‘‘(3) There is no presumption under subsection (1) or subsection (2) if A proves, on a balance of probabilities, that the trading in securities occurred, or the offer to trade was made, for a legitimate reason. ‘‘(4) There is no presumption under subsection (1) if A proves, on a balance of probabilities, that— ‘‘(a) in trading the securities A was acting on behalf of another person; and ‘‘(b) A did not know, and ought not reasonably to have known, when trading the securities that no change in beneficial ownership would result. ‘‘11D Criminal liability for false or misleading appearance of trading, etc A person who contravenes section 11B commits an offence (see section 43 for the maximum penalty of 5 years’ imprisonment and a $300,000 fine for an individual or a $1,000,000 fine for a body corporate) if the person has actual knowledge that the act or omission will have, or is likely to have, the effect of creating, or causing the creation of, a false or misleading appearance— ‘‘(a) with respect to the extent of active trading in the securities of a public issuer; or ‘‘(b) with respect to the supply of, demand for, price for trading in, or value of those securities. ‘‘Subpart 2—General dealing misconduct prohibition ‘‘Interpretation ‘‘12 Meaning of terms used in general dealing misconduct prohibition In this subpart,— ‘‘dealings in securities— 46 Part 1 cl 21 Securities Legislation ‘‘(a) means, in relation to the securities of a public issuer, any of the following steps: ‘‘(i) acquiring or disposing of securities; or ‘‘(ii) offering securities for subscription and issuing and allotting securities; or ‘‘(iii) underwriting securities; or ‘‘(iv) anything that is preparatory to, or related to, any dealings in securities (for example, giving investment advice) unless an exception applies to those dealings under this subpart; and ‘‘(b) means, in relation to securities that are not listed on a registered exchange, any of the steps referred to in paragraph (a) taken in the course of business; but ‘‘(c) excludes any dealings exempted by regulations made under section 49D ‘‘engaging in conduct means doing or refusing to do an act, and includes,— ‘‘(a) omitting to do an act; or ‘‘(b) making it known that an act will or will not be done ‘‘security— ‘‘(a) means a security as defined in section 2(1) other than a security exempted from Part II of the Securities Act 1978 under any of paragraphs (b) to (f) and (h) of section 5(1) of that Act; and ‘‘(b) means also, in relation to a security as defined in paragraph (a),— ‘‘(i) any form of beneficial interest in the security: ‘‘(ii) the power to exercise any right to vote attached to the security: ‘‘(iii) the power to control the exercise of any right to vote attached to the security: ‘‘(iv) the power to acquire or dispose of the security: ‘‘(v) the power to control the acquisition or disposition of the security by any person: ‘‘(vi) any power which may exist or arise at any time under any trust, agreement, arrangement, or understanding relating to the security to— ‘‘(A) exercise the right to vote attached to the security; or ‘‘(B) control the exercise of the right to vote attached to the security; or 47 Securities Legislation Part 1 cl 21 ‘‘(C) acquire or dispose of the security; or ‘‘(D) control the acquisition or disposition of the security by any person. ‘‘General dealing misconduct prohibition ‘‘13 Misleading or deceptive conduct generally (for dealings in listed and non-listed securities) ‘‘(1) A person must not engage in conduct, in relation to any dealings in securities, that is misleading or deceptive or likely to mislead or deceive. ‘‘(2) To make the position clear, this section applies more broadly than the rest of this Part and so applies to securities whether listed or non-listed and to all dealings in securities (not only trading). ‘‘13A Defences that may be raised in proceeding for contravention of section 13 ‘‘(1) In any proceeding against a person (A) for contravention of section 13, it is a defence if the defendant proves on a balance of probabilities— ‘‘(a) that the contravention was due to a reasonable mistake; or ‘‘(b) that the contravention was due to reasonable reliance on information supplied by another person; or ‘‘(c) that— ‘‘(i) the contravention was due to the act or default of another person to an accident or to some other cause beyond the defendant’s control; and ‘‘(ii) the defendant took reasonable precautions and exercised due diligence to avoid the contravention. ‘‘(2) However, this defence does not prevent the Commission from making a prohibition or corrective order under section 42B or a disclosure order under section 42D, or the Court from granting an injunction under section 42M, or making a corrective order under section 42P or a disclosure order under section 42R. ‘‘(3) In subsection (1), another person does not include— ‘‘(a) an employee or agent of the defendant; or ‘‘(b) if the defendant is a body corporate, a director, employee, or agent of the defendant. 48 Part 1 cl 21 Securities Legislation ‘‘13B Defendant must give notice of identity of third party ‘‘(1) A defendant cannot rely on a defence under section 13A that the contravention was due to reasonable reliance on information supplied by another person or was due to the act or default of another person unless the defendant has first served notice identifying that other person on the party or parties bringing the proceeding. ‘‘(2) The defendant must serve the notice not later than 7 clear days before the hearing of the proceeding begins. ‘‘(3) However, the Court may allow the defendant to rely on a defence specified in subsection (1) even if the defendant has not complied with subsection (1) or subsection (2) or both. ‘‘Exceptions ‘‘14 Exceptions for takeovers ‘‘(1) Sections 11 and 13 do not apply to conduct in relation to a takeover offer for securities under a takeovers code that is in force under the Takeovers Act 1993 or to conduct in relation to the acquisition of securities under that offer to the extent that the conduct is regulated by the code or the Act. ‘‘(2) For the purposes of subsection (1), conduct in relation to a takeover offer means conduct following the public announcement by a person of an intention to make the offer, whether or not the offer has already begun and whether or not the offer proceeds. ‘‘15 Exception for repurchase of shares by company Section 13 does not apply to conduct in relation to the acquisition or redemption by a company of its shares under the Companies Act 1993 to the extent that the conduct is regulated by that Act. ‘‘16 Exception for offers of securities to public Section 13 does not apply to conduct in relation to an offer of securities to the public for subscription under the Securities Act 1978 or to conduct in relation to the issue or allotment of those securities to the extent that the conduct is regulated by that Act. 49 Securities Legislation Part 1 cl 21 ‘‘17 Exception for disclosure by investment advisers or brokers Section 13 does not apply to conduct in relation to a disclosure under Part 4 or to conduct in relation to an advice advertisement, a broker advertisement, or a product advertisement to the extent that that conduct is regulated by Part 4. ‘‘Territorial scope ‘‘18 Territorial scope of general dealing misconduct prohibition Section 13 applies to— ‘‘(a) conduct in New Zealand; and ‘‘(b) conduct outside New Zealand by any person resident, incorporated, or carrying on business in New Zealand to the extent that that conduct relates to dealings in securities that occur (in part or otherwise) within New Zealand. ‘‘Fair Trading Act 1986 excluded ‘‘19 Fair Trading Act 1986 does not apply to conduct regulated by sections 11 to 11D and 13 of this Act Nothing in the Fair Trading Act 1986 applies to conduct to the extent that it is regulated by sections 11 to 11D and 13 of this Act.’’ Amendments to disclosure of relevant interests by directors and officers of public issuers 22 New section 19SA inserted The principal Act is amended by inserting, above section 19T, the following section: ‘‘19SA Purpose of subpart The purpose of this subpart is to promote good corporate governance, and to deter and assist in the monitoring of insider conduct and market manipulation, by— ‘‘(a) ensuring that information about directors’ and officers’ trading activities in public issuers is available to participants in New Zealand’s securities markets; and ‘‘(b) enabling the dates of trades to be checked against the dates at which material information became generally available to the market.’’ 50 Part 1 cl 26 Securities Legislation 23 Public issuer must keep interests register Section 19Z of the principal Act is amended by repealing subsection (2), and substituting the following subsections: ‘‘(2) The interests register must be kept at— ‘‘(a) the registered office of the public issuer; or ‘‘(b) any other place in New Zealand, of which notice is given in accordance with subsection (2A). ‘‘(2A) If the interests register is not kept at the public issuer’s registered office, or the place at which it is kept is changed, the public issuer must give written notice to the Registrar of Companies of the place at which it is kept within 10 working days of its first being kept elsewhere or of its being moved.’’ 24 Inspection and copying of interests register Section 19ZA of the principal Act is amended by repealing subsection (4), and substituting the following subsection: ‘‘(4) A person may require a copy of, or extract from, an interests register to be sent to that person— ‘‘(a) within 5 working days after the person has made a request in writing for the copy or extract; and ‘‘(b) if the person has paid a reasonable copy and administration fee determined by the public issuer.’’ 25 New section 19ZF substituted The principal Act is amended by repealing section 19ZF, and substituting the following section: ‘‘19ZF Offences relating to interests register ‘‘(1) A person who fails, without reasonable excuse, to comply with section 19Z(1) or (2) commits an offence (see section 43A for the maximum penalty of a $10,000 fine). ‘‘(2) If a person fails, without reasonable excuse, to provide a copy of, or extract from, an interests register in accordance with a request under section 19ZA, the person commits an offence (see section 43A for the maximum penalty of a $10,000 fine).’’ Amendments to disclosure of interests of substantial security holders in public issuers 26 New subpart 3 of Part 2 substituted Part 2 of the principal Act is amended by repealing subpart 3, and substituting the following subpart: 51 Securities Legislation Part 1 cl 26 ‘‘Subpart 3—Disclosure of interests of substantial security holders in public issuers ‘‘20 Purpose of subpart The purpose of this subpart is to promote an informed market, and to deter insider conduct, market manipulation, and secret dealings in potential takeover bids, by ensuring that participants in New Zealand’s securities markets have access to information concerning the identity and trading activities of persons who are, or may at any time be, entitled to control or influence the exercise of significant voting rights in a public issuer. ‘‘21 Meaning of substantial security holder, substantial holdings, and percentage ‘‘(1) A person is a substantial security holder in a public issuer for the purposes of this Act if that person has a substantial holding in that public issuer. ‘‘(2) A person has a substantial holding in a public issuer for the purposes of this Act if that person has a relevant interest in listed voting securities that comprise 5% or more of a class of listed voting securities of the public issuer. ‘‘(3) A person has a separate substantial holding for the purposes of this Act for each class in respect of which the person has a substantial holding under subsection (2). ‘‘(4) The percentage of securities that a person has in a class, for the purposes of this subpart, is calculated as follows: number held total ) ´ 100 ( if— number held is the number of securities, in that class, in which the person has a relevant interest total is the total number of securities in that class. ‘‘Event disclosure obligations ‘‘22 Persons must disclose if begin to have substantial holding ‘‘(1) A person who begins to have a substantial holding (or another substantial holding for another class) in a public issuer must disclose that fact in accordance with sections 26 and 27. 52 Part 1 cl 26 Securities Legislation ‘‘(2) The disclosure must be given as soon as the person knows, or ought to know, that the person has the substantial holding. ‘‘23 Substantial security holders must disclose if subsequent movement of 1% in holdings ‘‘(1) A substantial security holder in a public issuer must disclose, in accordance with sections 26 and 27, any movement of 1% or more in the substantial holding. ‘‘(2) There is a movement of 1% or more in a substantial holding if the percentage worked out using the formula in section 21(4) increases or decreases by 1 or more percentage points from the percentage last disclosed under this subpart in relation to the substantial holding. ‘‘(3) The disclosure must be given as soon as the person knows, or ought to know, that that movement has occurred. ‘‘24 Substantial security holders must disclose if subsequent changes in nature of relevant interests ‘‘(1) A substantial security holder in a public issuer must disclose, in accordance with sections 26 and 27, any change in the nature of any relevant interest in the substantial holding. ‘‘(2) The disclosure must be given as soon as the person knows, or ought to know, of the change. ‘‘25 Persons must disclose if cease to have substantial holding ‘‘(1) A person who ceases to have a substantial holding (or any of the person’s substantial holdings) in a public issuer must disclose that fact in accordance with sections 26 and 27. ‘‘(2) The disclosure must be given as soon as the person knows, or ought to know, that the person has ceased to have a substantial holding. ‘‘26 What disclosure required ‘‘(1) A person must disclose the matters required to be disclosed under any of sections 22 to 25 or section 34 to— ‘‘(a) the public issuer; and ‘‘(b) every registered exchange by which the securities of the public issuer are listed. 53 Securities Legislation Part 1 cl 26 ‘‘(2) The person must also disclose, as required by regulations made under section 49A, any further matters relating to that matter, the relevant event, or the substantial holding that are required by those regulations. ‘‘(3) The disclosure must also be accompanied by, or have annexed, anything required by regulations made under section 49A. ‘‘27 Form and method of disclosure The person must give the disclosure in accordance with any regulations made under section 49A (which may govern the form and method of the disclosure). ‘‘28 Public issuer must give acknowledgment of disclosure Every public issuer must, at the request of a person by whom disclosure is given to it under this subpart, give to that person an acknowledgment of the disclosure in the manner required by regulations made under section 49A. ‘‘29 How to ascertain total voting securities in class of public issuer’s voting securities for purposes of disclosure ‘‘(1) For the purposes of this subpart, a person may assume that the total number of securities of a public issuer in a class most recently published by the following methods is correct: ‘‘(a) in a document published by a public issuer and distributed to the holders of that class of securities; or ‘‘(b) on a website maintained by the relevant registered exchange. ‘‘(2) Subsection (1) does not apply if that person knows that number is not correct. ‘‘30 Exemption for persons with interest in other substantial security holders who comply A person (A) need not comply with any of sections 22 to 25 in relation to a substantial holding in a public issuer if— ‘‘(a) another person (B) is required to comply, and does comply, with that section in relation to the same public issuer; and ‘‘(b) A has that substantial holding merely for 1 or more of the following reasons: 54 Part 1 cl 26 Securities Legislation ‘‘(i) A has a power to exercise, or control the exercise of, the right to vote attached to 20% or more of the securities of B (see section 5B(1)(b)): ‘‘(ii) A has a power to acquire or dispose of, or control the acquisition or disposition of, 20% or more of the securities of B (see section 5B(1)(c)): ‘‘(iii) A and B are related bodies corporate (see section 5B(1)(d)). ‘‘31 Exemption for trustee corporations and nominee companies A person (A) need not comply with any of sections 22 to 25 in relation to a substantial holding in a public issuer if— ‘‘(a) A has that substantial holding merely because A acts for another person in the ordinary course of business as a trustee corporation or a nominee company; and ‘‘(b) A has opted in to this exemption by written notice to the Commission (and not withdrawn the notice by further written notice to the Commission); and ‘‘(c) A is not currently designated by the Commission, by notice in the Gazette under section 48C, as a person that is not exempt under this section. ‘‘32 Conditions of exemption for trustee corporations and nominee companies ‘‘(1) A person (A) to whom section 31 applies must— ‘‘(a) keep under continuing review the transactions of all persons for whom A holds listed voting securities in A’s name; and ‘‘(b) inform the public issuer of the securities and the registered exchange by which those securities are listed if section 22 or section 25 applies to any of those persons; and ‘‘(c) inform that registered exchange if it exercises, or proposes to exercise, in its own right any voting rights in respect of 5% or more of a class of listed voting securities of a public issuer. ‘‘(2) Every person who, without reasonable excuse, fails to comply with subsection (1) commits an offence (see section 43A for the maximum penalty of a $10,000 fine). 55 Securities Legislation Part 1 cl 26 ‘‘33 Extended time for disclosure for trustees, executors, and administrators If a person is required to comply with sections 22, 23, or 25 merely because the person is the trustee of a testamentary trust or the executor or administrator of the estate of a deceased person,— ‘‘(a) the time limit for disclosure in that section does not apply; and ‘‘(b) the disclosure must instead be given before the expiry of 14 days after the grant of administration under the Administration Act 1969. ‘‘Required disclosure obligations ‘‘34 Commission may require persons to disclose to market relevant interests and powers to get relevant interests ‘‘(1) The Commission may, by written notice given after having regard to the purpose of this subpart, require a person to disclose all (or any class of)— ‘‘(a) relevant interests that the person has in securities of the public issuer; or ‘‘(b) powers that the person has or may at any time have to acquire a relevant interest in securities of the public issuer. ‘‘(2) It does not matter whether the securities referred to in subsection (1)(a) and (b) are voting securities or not, listed or nonlisted, or issued or yet to be issued. ‘‘(3) The person must disclose the information required under subsection (1) in accordance with sections 26 and 27 as soon as the person receives the notice. ‘‘(4) Whether or not a person has a power referred to in subsection (1) must be determined in the same way as sections 5 to 5B determine whether or not a person has a relevant interest (and for this purpose every reference in those sections to a relevant interest must be read as including a reference to a power to acquire a relevant interest). 56 Part 1 cl 26 Securities Legislation ‘‘35 Public issuer may require registered holder to disclose relevant interests to it ‘‘(1) A public issuer may, by written notice, require a person who is registered as the holder of listed voting securities in that public issuer to disclose— ‘‘(a) the name and address of every person who has a relevant interest in those listed voting securities and the nature of that interest; and ‘‘(b) to the extent that that registered holder is unable to supply any of that information in relation to a person having a relevant interest in those listed voting securities, other particulars that will, or are likely to, assist in identifying that person and the nature of that interest. ‘‘(2) That registered holder must disclose that information in writing to the public issuer as soon as the holder receives the notice. ‘‘35A Public issuer may require person who has relevant interest to disclose information to it ‘‘(1) A public issuer may, by written notice, require a person who the public issuer believes has, or may have, a relevant interest in listed voting securities in that public issuer to disclose the information the public issuer specifies for the purpose of assisting the public issuer to ascertain who is, or may be, a substantial security holder in the public issuer. ‘‘(2) That relevant interest holder must disclose that information in writing to the public issuer as soon as the holder receives the notice. ‘‘35B Form and method of notice requiring disclosure The notice requiring disclosure under section 34, 35, or 35A must be given in accordance with the regulations (if any) made under section 49A (which may govern the form and method in which the notice must be given). ‘‘Register and publication of substantial holdings ‘‘35C Public issuers must maintain register of disclosures of substantial holdings ‘‘(1) The public issuer must keep a register for the disclosures given to it under this subpart (and must include a disclosure in the register on receiving it). 57 Securities Legislation Part 1 cl 26 ‘‘(2) The disclosures must be kept in the register in alphabetical order and with a chronological index. ‘‘(3) The register must be kept at— ‘‘(a) the registered office of the public issuer; or ‘‘(b) any other place in New Zealand, of which notice is given in accordance with subsection (4). ‘‘(4) If the register is not kept at the public issuer’s registered office, or the place at which it is kept is changed, the public issuer must give written notice to the Registrar of Companies of the place at which it is kept within 10 working days of its first being kept elsewhere or its being moved. ‘‘(5) This section and section 35D do not derogate from the Companies Act 1993 or any other enactment. ‘‘35D Inspection and copying of substantial holdings register ‘‘(1) The register required under section 35C must be kept open for inspection by any person. ‘‘(2) The register must be open for inspection between the hours of 9 am and 5 pm on each working day during the inspection period. ‘‘(3) In subsection (2), inspection period means the period commencing on the third working day after the day on which notice of intention to inspect is served on the public issuer by the person concerned and ending with the eighth working day after the day of service. ‘‘(4) A person may require a copy of, or extract from, a register to be sent to that person— ‘‘(a) within 5 working days after the person has made a request in writing for the copy or extract; and ‘‘(b) if the person has paid a reasonable copy and administration fee determined by the public issuer. ‘‘35E Offences relating to substantial holdings register ‘‘(1) Every person who, without reasonable excuse, fails to comply with a requirement of section 35C or section 35D commits an offence (see section 43A for the maximum penalty of a $10,000 fine). ‘‘(2) If a person fails, without reasonable excuse, to provide a copy of, or extract from, the register kept under section 35C in accordance with a request under section 35D, the person commits an 58 Part 1 cl 26 Securities Legislation offence (see section 43A for the maximum penalty of a $10,000 fine). ‘‘35F Public issuers must publish information on substantial holdings ‘‘(1) Every public issuer must, in accordance with this section, send out a notice stating— ‘‘(a) the names of all persons who, according to the register kept under section 35C, are substantial security holders in the public issuer, at the record date; and ‘‘(b) the number and class of listed voting securities of the public issuer that, according to the register, form part of each substantial holding in the public issuer at the record date; and ‘‘(c) the total number in each class of the public issuer’s listed voting securities at the record date. ‘‘(2) The notice must be sent— ‘‘(a) for public issuers that are companies (other than overseas companies within the meaning of the Companies Act 1993), to each shareholder with or in— ‘‘(i) the annual report sent under section 209 of the Companies Act 1993; or ‘‘(ii) if the shareholder has elected not to receive an annual report, the financial statements or summary financial statements sent under section 210 of that Act; and ‘‘(b) for every other public issuer, to every holder of its listed voting securities not later than 30 June in each year. ‘‘(3) The record date is a date stated in the notice that is not earlier than 3 months before the notice is sent. ‘‘35G Registered exchange must publish disclosures A registered exchange must— ‘‘(a) notify each disclosure given to it under this subpart to the registered exchange’s market as soon as practicable after receiving it; and ‘‘(b) publish that disclosure on its website soon after notifying it to the registered exchange’s market. 59 Securities Legislation Part 1 cl 26 ‘‘35H Offence for failing to publish information on substantial holdings or disclosures ‘‘(1) A public issuer who, without reasonable excuse, fails to comply with a requirement of section 35F commits an offence (see section 43A for the maximum penalty of a $10,000 fine). ‘‘(2) A registered exchange who, without reasonable excuse, fails to comply with a requirement of section 35G commits an offence (see section 43A for the maximum penalty of a $10,000 fine). ‘‘35I No liability for publication of substantial holdings or disclosures No public issuer is liable for any false or misleading information published under section 35F if the information was derived by the issuer under this subpart and the issuer did not know that the information was false or misleading. ‘‘35J Notice under this subpart not to affect incorporation of public issuer or constitute notice of trust ‘‘(1) Nothing in, or done under, this subpart— ‘‘(a) affects the incorporation of a public issuer; or ‘‘(b) limits section 92, 93, or 94 of the Companies Act 1993. ‘‘(2) A public issuer is not, by virtue of anything done for the purposes of this subpart, affected with notice of, or put on inquiry as to, the rights of any person in relation to any securities.’’ Insertion of new Part 4 on investment advisers and brokers and new Part 5 on enforcement and remedies 27 New Parts 4 and 5 substituted (1) The principal Act is amended by repealing sections 41 to 43 and the Part 4 heading, and substituting the following Parts: ‘‘Part 4 ‘‘Investment advisers and brokers ‘‘Application of this Part ‘‘41 When investment advice given to public, etc For the purpose of this Part, in determining whether investment advice is given to the public or investment money or investment property is received from the public, section 3 of 60 Part 1 cl 27 Securities Legislation the Securities Act 1978 (which relates to the construction of references to offering securities to the public) applies as if every reference in that section to an offer of securities were a reference to the giving of investment advice or receiving of investment money or investment property, as the case may be. ‘‘41A Meaning of security in this Part In this Part, unless the context otherwise requires, security means a security as defined in section 2(1) except that it does not include— ‘‘(a) a security exempted from Part II of the Securities Act 1978 under any of paragraphs (b) to (f) and (h) of section 5(1) of that Act; or ‘‘(b) a call security as defined in regulations made under that Act. ‘‘Disclosure by investment advisers ‘‘41B Investment advisers’ disclosure obligation An investment adviser must not give investment advice to a member of the public unless the adviser has first made disclosure to that person in accordance with— ‘‘(a) sections 41C to 41G; and ‘‘(b) any requirements specified by regulations made under section 49C. ‘‘41C Investment adviser must disclose experience, qualifications, professional standing, etc An investment adviser must disclose— ‘‘(a) the following information in relation to any qualifications of the adviser that are relevant to the giving of investment advice: ‘‘(i) the nature of the qualifications; and ‘‘(ii) when those qualifications were obtained; and ‘‘(iii) a brief description of the extent to which the adviser has kept up to date the knowledge gained in obtaining those qualifications; and ‘‘(b) a brief description of the adviser’s experience as an investment adviser; and: ‘‘(c) whether the adviser is a member of a professional body that is relevant to the provision of investment advice; and 61 Securities Legislation Part 1 cl 27 ‘‘(d) whether the adviser has professional indemnity insurance, and the nature and scope of that insurance; and ‘‘(e) whether dispute resolution facilities are available to the adviser’s clients. ‘‘41D Investment adviser must disclose certain criminal convictions, etc ‘‘(1) An investment adviser must disclose whether, during the period of 5 years before the investment advice is given, the investment adviser— ‘‘(a) has been convicted of an offence under this Act or the Securities Act 1978, or of a crime involving dishonesty (as defined in section 2(1) of the Crimes Act 1961); or ‘‘(b) was a principal officer of a body corporate, if a body corporate committed an offence referred to in paragraph (a), when the body corporate committed the offence; or ‘‘(c) has been adjudicated bankrupt; or ‘‘(d) has been prohibited by an Act or by a court from taking part in the management of a company or a business; or ‘‘(e) has been a party to any successful court action that has been taken against the investment adviser in the adviser’s professional or other business capacity; or ‘‘(f) has been expelled from, or has been prohibited from being a member of, a professional body. ‘‘(2) In the case of an investment adviser that is a body corporate or unincorporated, the investment adviser must also— ‘‘(a) make disclosure under subsection (1) for each principal officer of the investment adviser; and ‘‘(b) disclose whether, during the period of 5 years before the investment advice is given, the investment adviser has been placed in statutory management or receivership. ‘‘41E Investment adviser must disclose fees An investment adviser must disclose the nature and level of the fee that the adviser will charge the person to whom the adviser gives investment advice. ‘‘41F Investment adviser must disclose other interests and relationships ‘‘(1) An investment adviser must disclose whether or not the adviser or an associated person has, or will or may have, any 62 Part 1 cl 27 Securities Legislation interest or relationship that a reasonable person would find reasonably likely to influence the adviser in giving the investment advice. ‘‘(2) This includes an obligation to disclose— ‘‘(a) any relevant remuneration as defined in subsection (4); and ‘‘(b) whether the adviser is an associated person of, or has any other financial or other relationship with, any person connected with the investment; and ‘‘(c) any other person (other than a professional body) who may reasonably be expected to influence the provision or content of the investment advice; and ‘‘(d) any other direct or indirect pecuniary or other interest in giving the investment advice. ‘‘(3) An investment adviser must disclose the following information: ‘‘(a) the nature and extent of the interest or relationship; and ‘‘(b) in the case of remuneration, to the extent practicable, the amount or rate of the remuneration and the name of the person from whom the remuneration has been, or will or may be, received. ‘‘(4) In this section,— ‘‘relevant remuneration means any remuneration that the adviser or an associated person has received, or will or may receive, directly or indirectly, from a person other than the investor in connection with the giving of the investment advice or a transaction resulting from the giving of the advice ‘‘remuneration means a commission, fee, or other benefit or advantage, whether pecuniary or not, and whether direct or indirect; but does not include a salary or wages of a fixed amount. ‘‘41G Investment adviser must disclose details of securities about which advice given An investment adviser must disclose— ‘‘(a) the types of securities about which the adviser gives advice; and ‘‘(b) if the adviser gives advice only about securities of a particular issuer or particular issuers, a statement to this effect and the name of each of the issuers concerned. 63 Securities Legislation Part 1 cl 27 ‘‘Disclosure by investment brokers ‘‘41H Investment brokers’ disclosure obligation An investment broker must not receive investment money or investment property from a member of the public unless the broker has first made disclosure to that person in accordance with— ‘‘(a) sections 41I and 41J; and ‘‘(b) any requirements specified by regulations made under section 49C. ‘‘41I Investment broker must disclose certain criminal convictions, etc ‘‘(1) An investment broker must disclose whether, during the period of 5 years before the investment money or investment property is received, the investment broker— ‘‘(a) has been convicted of an offence under this Act or the Securities Act 1978, or of a crime involving dishonesty (as defined in section 2(1) of the Crimes Act 1961); or ‘‘(b) was a principal officer of a body corporate, if a body corporate committed an offence referred to in paragraph (a), when the body corporate committed the offence; or ‘‘(c) has been adjudicated bankrupt; or ‘‘(d) has been prohibited by an Act or by a court from taking part in the management of a company or a business; or ‘‘(e) has been a party to any successful court action taken against the broker in the broker’s professional or other business capacity; or ‘‘(f) has been expelled from, or has been prohibited from being a member of, a professional body. ‘‘(2) In the case of an investment broker that is a body corporate or unincorporated, the investment adviser must also— ‘‘(a) make disclosure under subsection (1) for each principal officer of the investment broker; and ‘‘(b) disclose whether, during the period of 5 years before the investment money or investment property is received, the investment broker has been placed in statutory management or receivership. 64 Part 1 cl 27 Securities Legislation ‘‘41J Investment broker must disclose procedures for dealing with investment money or investment property ‘‘(1) An investment broker must disclose a brief description of the procedures of the broker (or, if the broker is acting in the course of his or her employment, of the employer) relating to the receipt and disbursement of the money or receipt and distribution of the property by the broker, including— ‘‘(a) how payment or delivery of money or delivery of property should be made to the broker; and ‘‘(b) whether or not the money or property received by the broker will be held on trust for the investor, and will be so held until it is disbursed or distributed in accordance with the investor’s instructions; and ‘‘(c) what records will be kept by the broker in relation to the money or property, whether the investor has access to those records, and the terms of that access; and ‘‘(d) whether or not the receipt, holding, and disbursement of the money and the receipt, holding, and distribution of the property, by the broker will be audited by an auditor and, if so, the name of the auditor; and ‘‘(e) the extent, if any, to which the broker can use the money or property for the benefit of the broker or any other person; and ‘‘(f) any other information that must be disclosed under regulations made under this Act. ‘‘(2) For the purposes of subsection (1)(d), auditor means a person who would, if the broker were an issuer of securities, be a qualified auditor within the meaning of section 2C of the Securities Act 1978. ‘‘Method of disclosure ‘‘41K How disclosure must be made ‘‘(1) Disclosure under this Part must be made in a disclosure statement. ‘‘(2) The disclosure statement must— ‘‘(a) be in writing; and ‘‘(b) state when it was prepared; and ‘‘(c) in the case of an investment adviser or an investment broker, other than an employee of an investment adviser 65 Securities Legislation Part 1 cl 27 or investment broker, state the name, address, and business telephone number of the investment adviser or the investment broker concerned; and ‘‘(d) in the case of an investment adviser or an investment broker who is an employee of an investment adviser or an investment broker, state the name of that employee; and ‘‘(e) be either received by the investor, or delivered or sent to the investor, at the investor’s last known address or an address (including an electronic address) specified by the investor for this purpose; and ‘‘(f) comply with any regulations prescribing the contents of the statement. ‘‘Other requirements relating to disclosure ‘‘41L Disclosure must not be misleading Disclosure under this Part must not be deceptive, misleading, or confusing at the time that it is made. ‘‘41M Disclosure of additional information ‘‘(1) A disclosure statement may be accompanied by disclosure of additional information. ‘‘(2) Additional information that accompanies a disclosure statement must not be deceptive, misleading, or confusing. ‘‘41N No compliance with disclosure obligations if disclosure statement out of date ‘‘(1) An investment adviser or an investment broker who has previously given a member of the public a disclosure statement does not comply with their respective disclosure obligations under this Part if the disclosure statement is out of date when— ‘‘(a) the investment adviser gives that person investment advice; or ‘‘(b) the investment broker receives investment money or investment property from that person. ‘‘(2) The disclosure statement is out of date if— ‘‘(a) since the date of the disclosure statement there has been a material change in any matter that must be disclosed in the disclosure statement; and 66 Part 1 cl 27 Securities Legislation ‘‘(b) a reasonable person would consider that the change may materially affect any of the following decisions by that person: ‘‘(i) in the case of disclosure by an investment adviser, a decision— ‘‘(A) to proceed to be given investment advice by that adviser; or ‘‘(B) to proceed with investment advice already given by the adviser; or ‘‘(C) about the weight that the person gives to investment advice by that adviser: ‘‘(ii) in the case of an investment broker, a decision— ‘‘(A) to proceed with the receipt of investment money or investment property by that broker; or ‘‘(B) to postpone or countermand the investment of investment money or investment property already received by that broker but not yet invested. ‘‘(3) Subsection (1) does not apply if, before the investment advice is given or the investment money or investment property is received, as the case may be, the investment adviser or the investment broker gives the person concerned— ‘‘(a) a new disclosure statement that is up to date; or ‘‘(b) additional written information that, when read with the original disclosure statement, updates the disclosure statement. ‘‘41O Advertisement must refer to disclosure statement Any advertisement by an investment adviser or an investment broker advertising that person’s services must state that a disclosure statement is available, on request and free of charge. ‘‘41P Advertisement must not be deceptive, misleading, or confusing ‘‘(1) An advertisement must not be deceptive, misleading, or confusing. ‘‘(2) In subsection (1), advertisement means an advice advertisement, a broker advertisement, or a product advertisement. 67 Securities Legislation Part 1 cl 27 ‘‘Offences ‘‘41Q Offence for failure to comply with disclosure obligation Every person who is aware or ought reasonably to be aware of information that the person must disclose under an investment advisers’ or investment brokers’ disclosure obligation, and who fails to disclose that information in accordance with this Part, commits an offence (see section 43D for the maximum penalty of a $100,000 fine for an individual or a $300,000 fine for a body corporate). ‘‘41R Offence of deceptive, misleading, or confusing disclosure ‘‘(1) An investment adviser or an investment broker who makes disclosure that contravenes section 41L or section 41M commits an offence (see section 43D for the maximum penalty of a $100,000 fine for an individual or a $300,000 fine for a body corporate). ‘‘(2) However, the adviser or the broker does not commit an offence under subsection (1) if the adviser or the broker proves that, at the time when the disclosure was made, the adviser or the broker had reasonable grounds to believe that the disclosure was not deceptive, misleading, or confusing. ‘‘(3) The defence in subsection (2) does not prevent the Commission from making a prohibition or corrective order under section 42B or a disclosure order under section 42D, or the Court from granting an injunction under section 42M, or making a corrective order under section 42P or a disclosure order under section 42R. ‘‘41S Offence of deceptive, misleading, or confusing advertisement ‘‘(1) An investment adviser or an investment broker commits an offence (see section 43D for the maximum penalty of a fine of $300,000 and $10,000 per day in the case of a continuing offence) if an advertisement— ‘‘(a) contravenes section 41P; and ‘‘(b) has been distributed to a person; and ‘‘(c) was— ‘‘(i) authorised or instigated by, or on behalf of, the adviser or the broker; or ‘‘(ii) prepared with the co-operation of, or by arrangement with, the adviser or the broker. 68 Part 1 cl 27 Securities Legislation ‘‘(2) However, the adviser or the broker does not commit an offence under subsection (1) if the adviser or the broker proves that, at the time when the advertisement was distributed, the adviser or the broker had reasonable grounds to believe that the advertisement was not deceptive, misleading, or confusing. ‘‘(3) The defence in subsection (2) does not prevent the Commission from making a prohibition or corrective order under section 42B or a disclosure order under section 42D, or the Court from granting an injunction under section 42M, or making a corrective order under section 42P or a disclosure order under section 42R. ‘‘41T Recommending, or receiving money for, acquisition of securities prohibited if offer for subscription illegal ‘‘(1) An investment adviser must not recommend to a member of the public that that person acquire securities, and an investment broker must not receive investment money from a member of the public in respect of the acquisition of securities, if— ‘‘(a) when the securities were or are offered for subscription, the offer was or is illegal; and ‘‘(b) the illegality has not been remedied; and ‘‘(c) the adviser or the broker knows or ought to know that, when the securities were or are offered for subscription, the offer was or is illegal. ‘‘(2) A person who contravenes subsection (1) commits an offence (see section 43D for the maximum penalty of a fine of $300,000 and $10,000 per day in the case of a continuing offence). ‘‘41U Defence of immateriality It is a defence to a charge of contravening any of sections 41Q to 41T if the contravention was in respect of matters that, in the opinion of the Court dealing with the charge, were immaterial. ‘‘Territorial scope of this Part ‘‘41V Territorial scope ‘‘(1) This Part applies to investment advice offered to, or an investment brokers service performed for, a person in New Zealand, regardless of— ‘‘(a) where any resulting investment occurs: 69 Securities Legislation Part 1 cl 27 ‘‘(b) where any investment money or investment property is received: ‘‘(c) where the adviser or broker is resident, is incorporated, or carries on business. ‘‘(2) For the purposes of this Part, advice is offered to a person in New Zealand if the advice is received by a person in New Zealand, unless the adviser shows that it took all reasonable steps to ensure that members of the public in New Zealand do not receive the advice. ‘‘(3) This Part applies to investment advice offered to, or an investment brokers service performed for, a person outside New Zealand by a person who is resident, is incorporated, or carries on business, in New Zealand. ‘‘Miscellaneous ‘‘41W No contracting out The provisions of this Part have effect no matter what any agreement may say. ‘‘41X Liability under other law or enactment ‘‘(1) Nothing in the Fair Trading Act 1986 applies to conduct to the extent that it is regulated by this Part. ‘‘(2) Nothing in this Part affects the liability of a person under any other law or enactment. ‘‘Part 5 ‘‘Enforcement and remedies ‘‘Subpart 1—Preliminary provisions ‘‘42 What are contraventions for purposes of Part In this Part, unless the context otherwise requires, a reference to a person who has contravened a provision, prohibition, obligation, or exemption (a provision) is a reference to a person who— ‘‘(a) has contravened the provision; or ‘‘(b) has attempted to contravene the provision; or ‘‘(c) has aided, abetted, counselled, or procured any other person to contravene the provision; or 70 Part 1 cl 27 Securities Legislation ‘‘(d) has induced, or attempted to induce, any other person, whether by threats or promises or otherwise, to contravene the provision; or ‘‘(e) has been in any way, directly or indirectly, knowingly concerned in, or a party to, the contravention by any other person of the provision; or ‘‘(f) has conspired with any other person to contravene the provision. ‘‘42A Definitions in this Part ‘‘(1) In this Part, acquire, dispose of, and security have the meanings that they have in Part 1 when applied to a contravention of Part 1. ‘‘(2) In this Part, a reference to an exemption in respect of an obligation or provision is to an exemption granted by or under this Act from that obligation or provision (for example, a continuous disclosure obligation exemption is an exemption from a continuous disclosure obligation). ‘‘(3) In this Part, a reference to a person contravening or complying with an exemption is to a person contravening or complying with a term or condition of that exemption. ‘‘Subpart 2—Commission’s enforcement powers ‘‘Prohibition and corrective orders ‘‘42B When Commission may make prohibition and corrective orders The Commission may make a prohibition order or a corrective order, or both, in accordance with this subpart if it is satisfied that, by engaging in any conduct, a person has contravened, or would contravene,— ‘‘(a) a market manipulation prohibition or the general deal- ‘‘(b) an investment advisers’ or brokers’ obligation or ‘‘(c) section 36A(1) (no holding out as securities exchange ing misconduct prohibition: exemption: unless registered) or an exemption from that section: ‘‘(d) section 37A(1) (no holding out as futures exchange unless authorised). 71 Securities Legislation Part 1 cl 27 ‘‘42C Terms of prohibition and corrective orders ‘‘(1) A prohibition order may prohibit or restrict the making of any statement or distributing of any document by or on behalf of the person for the purpose of preventing a contravention or further contravention of the relevant prohibition, obligation, or exemption. ‘‘(2) A corrective order may direct the person in contravention to publish, at the person’s own expense, in the manner and at the times specified in the order, corrective statements that are specified in, or are to be determined in accordance with, the order. ‘‘Disclosure orders ‘‘42D When Commission may make disclosure orders The Commission may make a disclosure order in accordance with this subpart if it is satisfied that a person has contravened— ‘‘(a) a continuous disclosure obligation or exemption: ‘‘(b) a directors’ and officers’ disclosure obligation or exemption: ‘‘(c) a substantial security holders’ disclosure obligation or exemption: ‘‘(d) an investment advisers’ or brokers’ disclosure obligation or exemption. ‘‘42E Terms of disclosure orders A disclosure order may order the person— ‘‘(a) to disclose in accordance with the order information for the purpose of securing compliance with the relevant obligation or exemption: ‘‘(b) to publish, at the person’s own expense, in the manner and at the times specified in the order, corrective statements that are specified in, or are to be determined in accordance with, the order. 72 Part 1 cl 27 Securities Legislation ‘‘Temporary investment adviser and broker banning orders ‘‘42F When Commission may make temporary banning orders for investment adviser or broker activities The Commission may make a temporary banning order against a person in accordance with this subpart if the Commission is satisfied that— ‘‘(a) the person has persistently contravened section 13 (general dealing misconduct prohibition), Part 4 (investment advisers and brokers), or the Securities Act 1978; or ‘‘(b) the person has been prohibited in an overseas jurisdiction from carrying on activities that the Commission is satisfied are substantially similar to any of the activities referred to in section 42G. ‘‘42G Terms of temporary banning order for investment adviser and broker activities A temporary banning order may prohibit or restrict the person from doing all or any of the following things, without the leave of the Commission, for a period stated in the order of 14 days or less: ‘‘(a) giving investment advice to, or receiving investment money or investment property from, the public: ‘‘(b) acting as a director or promoter of, or in any way, whether directly or indirectly, being concerned or taking part in the management of, any company or business that is an investment adviser or an investment broker: ‘‘(c) acting as an employee or agent of an investment adviser or an investment broker in a capacity that allows the person to take part in the giving of investment advice to, or receiving investment money or investment property from, the public. ‘‘Process for Commission’s orders ‘‘42H Commission must follow steps before making orders ‘‘(1) The Commission may make an order under this subpart only if it first takes the following steps: ‘‘(a) gives the person to whom the order is directed written notice of— ‘‘(i) the nature of the alleged contravention; and 73 Securities Legislation Part 1 cl 27 ‘‘(ii) the proposed terms of the order; and ‘‘(iii) the reasons for the proposed order; and ‘‘(b) also gives that written notice to the relevant registered exchange, in the case of a disclosure order for a contravention of a continuous disclosure obligation or exemption; and ‘‘(c) gives that notice at least— ‘‘(i) 24 hours before the Commission makes the order, in the case of an order specified in section 42I; or ‘‘(ii) 48 hours before the Commission makes the order, in the case of any other disclosure order; or ‘‘(iii) 7 days before the Commission makes the order, in the case of any other prohibition or corrective order; and ‘‘(d) gives each person to whom notice of the order must be given an opportunity to make written submissions within that notice period; and ‘‘(e) also gives each of those persons an opportunity to have the matter determined following a meeting of the Commission after the expiry of that notice period and the opportunity to be heard and represented by counsel at that meeting (but this paragraph does not apply to an order specified in section 42I); and ‘‘(f) has regard to any written submissions made to it within that notice period and (if applicable) written or oral submissions made at a meeting of the Commission. ‘‘(2) However, the Commission may shorten these steps in accordance with section 42I for an order specified in that section. ‘‘42I Commission may shorten steps for specified orders ‘‘(1) If the Commission thinks it necessary or desirable in the public interest for any of the orders set out in subsection (3) to be made more urgently than section 42H permits, it— ‘‘(a) may give less than 24 hours’ notice before it makes the order, and the notice may be oral, not written; and ‘‘(b) may give persons an opportunity to make only oral submissions, not written, to a member, officer, or employee of the Commission (as the Commission determines). 74 Part 1 cl 27 Securities Legislation ‘‘(2) However, the Commission must include in the notice under that section the reasons for acting urgently and must otherwise comply with the steps set out in that section. ‘‘(3) The orders are— ‘‘(a) a prohibition or corrective order for a contravention of a market manipulation prohibition or the general dealing misconduct prohibition: ‘‘(b) a prohibition or corrective order for an investment advisers’ or brokers’ obligation or exemption if that order is stated to apply for a period of 14 days or less: ‘‘(c) a disclosure order for a contravention of a continuous disclosure obligation or exemption: ‘‘(d) a temporary banning order. ‘‘42J Commission must give notice after making orders ‘‘(1) If the Commission makes an order under this subpart, the Commission— ‘‘(a) must, as soon as is reasonably practicable, give written notice to the person to whom the order is directed of— ‘‘(i) the terms of the order; and ‘‘(ii) the reasons for the order; and ‘‘(b) must also give that written notice to the relevant registered exchange, in the case of a disclosure order for a contravention of a continuous disclosure obligation or exemption; and ‘‘(c) may also give notice to any other person of those matters. ‘‘(2) The Commission must also, as soon as practicable after the making of a temporary banning order, give notice on its website (and may give public notice by any other means also) of the name of the person against whom the order is made and the period or dates for which the ban applies. ‘‘General provisions ‘‘42K General provisions on Commission’s orders ‘‘(1) The Commission may make an order under this subpart on the terms and conditions that the Commission thinks fit. ‘‘(2) The Commission may vary an order in the same way as it may make the order under this subpart. 75 Securities Legislation Part 1 cl 27 ‘‘(3) The Commission may revoke an order or suspend an order on the terms and conditions it thinks fit. ‘‘(4) An order made under this subpart is subject to appeal only in accordance with section 69P of the Securities Act 1978. ‘‘42L Offence for failing to comply with Commission’s orders ‘‘(1) A person who contravenes an order made by the Commission under this subpart commits an offence (see section 43E for the maximum penalty of a $30,000 fine). ‘‘(2) No person may be convicted of an offence against subsection (1) if— ‘‘(a) the person proves that the contravention occurred without the person’s knowledge or without the person’s ‘‘(b) the contravention was in respect of matters that, in the knowledge of the order; or Court’s opinion, were immaterial; or ‘‘(c) the Court thinks that the contravention, in the circumstances of the case, ought reasonably to be excused. ‘‘Subpart 3—Court’s enforcement powers ‘‘Injunctions ‘‘42M What Court may injunct The Court may, on application by the Commission or any other person, grant an injunction restraining a person from engaging in conduct that constitutes or would constitute a contravention of a provision of this Act. ‘‘42N When Court may grant injunctions and interim injunctions ‘‘(1) The Court may grant an injunction restraining a person from engaging in conduct of a particular kind if— ‘‘(a) it is satisfied that the person has engaged in conduct of that kind; or ‘‘(b) it appears to the Court that, if an injunction is not granted, it is likely that the person will engage in conduct of that kind. ‘‘(2) The Court may grant an interim injunction restraining a person from engaging in conduct of a particular kind if in its opinion it is desirable to do so. 76 Part 1 cl 27 Securities Legislation ‘‘(3) Subsections (1)(a) and (2) apply whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind. ‘‘(4) Subsections (1)(b) and (2) apply whether or not the person has previously engaged in conduct of that kind or there is an imminent danger of substantial damage to any other person if that person engages in conduct of that kind. ‘‘42O Undertaking as to damages not required by Commission ‘‘(1) If the Commission applies to the Court for the grant of an interim injunction under this subpart, the Court must not, as a condition of granting an interim injunction, require the Commission to give an undertaking as to damages. ‘‘(2) However, in determining the Commission’s application for the grant of an interim injunction, the Court must not take into account that the Commission is not required to give an undertaking as to damages. ‘‘Corrective orders ‘‘42P When Court may grant corrective orders The Court may, on application by the Commission or any other person, make a corrective order if it is satisfied that a person has contravened— ‘‘(a) a market manipulation prohibition or the general deal- ‘‘(b) an investment advisers’ or brokers’ obligation or ‘‘(c) section 36A(1) (no holding out as securities exchange ing misconduct prohibition: exemption: unless registered) or an exemption from that section: ‘‘(d) section 37A(1) (no holding out as futures exchange unless authorised). ‘‘42Q Terms of corrective orders A corrective order may direct the person in contravention to publish, at the person’s own expense, in the manner and at the times specified in the order, corrective statements that are specified in, or are to be determined in accordance with, the order. 77 Securities Legislation Part 1 cl 27 ‘‘Disclosure orders ‘‘42R When Court may make disclosure orders The Court may, on application by the Commission or any other person, make a disclosure order if it is satisfied that a person has contravened— ‘‘(a) a continuous disclosure obligation or exemption: ‘‘(b) a substantial security holders’ disclosure obligation or exemption: ‘‘(c) an investment advisers’ or brokers’ disclosure obligation or exemption. ‘‘42S Terms of disclosure orders A disclosure order may order— ‘‘(a) the person in contravention to disclose in accordance with the order information for the purpose of securing compliance with the relevant obligation or exemption: ‘‘(b) the person in contravention to publish, at the person’s own expense, in the manner and at the times specified in the order, corrective statements that are specified in, or are to be determined in accordance with, the order. ‘‘Subpart 4—Civil remedies ‘‘Overview of civil remedies ‘‘42T Overview of civil remedies ‘‘(1) The following remedies (civil remedy orders) may be available for a contravention of a civil remedy provision (except if otherwise provided) under this subpart: ‘‘(a) a pecuniary penalty order and declaration of contravention (on application by the Commission only): ‘‘(b) a compensatory order: ‘‘(c) a specific civil remedy order under section 42ZD: ‘‘(d) other civil remedy orders under section 42ZF. ‘‘(2) Section 42ZH covers how those civil remedy orders interrelate with each other. ‘‘(3) This section is a guide only to the general scheme and effect of this subpart. ‘‘42U What are civil remedy provisions In this subpart, a civil remedy provision is— ‘‘(a) an insider conduct prohibition: 78 Part 1 cl 27 Securities Legislation ‘‘(b) a market manipulation prohibition: ‘‘(c) the general dealing misconduct prohibition: ‘‘(d) a continuous disclosure obligation or exemption: ‘‘(e) a substantial security holders’ disclosure obligation or exemption: ‘‘(f) an investment advisers’ or brokers’ obligation or exemption. ‘‘Pecuniary penalty orders and declarations of contravention ‘‘42V When Court may make pecuniary penalty orders and declarations of contravention ‘‘(1) If the Commission applies for a pecuniary penalty order against a person under this Act, the Court— ‘‘(a) must determine whether the person has contravened a civil remedy provision; and ‘‘(b) must make a declaration of contravention (see sections 42W and 42X) if satisfied that there is a contravention; and ‘‘(c) may order the person to pay a pecuniary penalty that the Court considers appropriate to the Crown (see sections 42Y to 42ZA) if satisfied that there is a contravention and that the contravention— ‘‘(i) materially prejudices the interests of acquirers or disposers of the securities or relevant interests involved; or ‘‘(ii) materially prejudices the public issuer or, if the public issuer is a body corporate, its members; or ‘‘(iii) is likely to materially damage the integrity or reputation of any of New Zealand’s securities markets; or ‘‘(iv) is otherwise serious. ‘‘(2) However, the Court must not make a declaration of contravention or a pecuniary penalty order under this section for a contravention of— ‘‘(a) section 13 (general dealing misconduct prohibition); or ‘‘(b) an investment advisers’ or broker’s disclosure obligation or exemption. ‘‘42W Purpose and effect of declarations of contravention ‘‘(1) The purpose of a declaration of contravention is to enable an applicant for a compensatory order or other civil remedy order 79 Securities Legislation Part 1 cl 27 under section 42ZF to rely on the declaration of contravention in the proceedings for that order, and not be required to prove the contravention. ‘‘(2) Accordingly, a declaration of contravention is conclusive evidence of the matters that must be stated in it under section 42X. ‘‘42X What declarations of contravention must state A declaration of contravention must state the following: ‘‘(a) the court that made the declaration; and ‘‘(b) the civil remedy provision to which the contravention relates or, if the contravention is of an exemption, both the term or condition contravened and the civil remedy provision to which the exemption relates; and ‘‘(c) the person who engaged in the contravention; and ‘‘(d) the conduct that constituted the contravention and, if a transaction constituted the contravention, the transaction; and ‘‘(e) the public issuer to which the conduct related (if relevant). ‘‘42Y Maximum amount of pecuniary penalty ‘‘(1) The maximum amount of a pecuniary penalty for a contravention of an insider conduct prohibition or market manipulation prohibition is the greater of— ‘‘(a) the consideration for the transaction that constituted the contravention (if any); or ‘‘(b) 3 times the amount of the gain made, or the loss avoided, by the person in carrying out the conduct (see section 42Z for guidance); or ‘‘(c) $1,000,000. ‘‘(2) The maximum amount of a pecuniary penalty for a contravention of any other civil remedy provision is $1,000,000. ‘‘42Z Guidance for Court on how to determine gains made or losses avoided for purposes of maximum amount ‘‘(1) For the purposes of section 42Y(1)(b),— ‘‘(a) a person makes a gain if the person acquires a security in a public issuer for less than its value: ‘‘(b) a person avoids a loss if the person disposes of a security in a public issuer for more than its value. 80 Part 1 cl 27 Securities Legislation ‘‘(2) In this case, the gain made or loss avoided is the difference between the consideration paid or received (as the case may be) and the value the security would have had at the time of the sale if,— ‘‘(a) in the case of a contravention of an insider conduct prohibition, the material information had been generally available to the market; or ‘‘(b) in the case of a contravention of a market manipulation prohibition, the conduct, statement, or information had not been misleading, deceptive, or false. ‘‘42ZA Considerations for Court in determining pecuniary penalty In determining an appropriate pecuniary penalty, the Court must have regard to all relevant matters, including— ‘‘(a) any purpose and criteria stated in this Act that apply to the civil remedy provision; and ‘‘(b) the nature and extent of the contravention; and ‘‘(c) the likelihood, nature, and extent of any damage to the integrity or reputation of any of New Zealand’s securities markets because of the contravention; and ‘‘(d) the nature and extent of any loss or damage suffered by a person referred to in section 42V(1)(c)(i) or (ii), or gains made or losses avoided by the person in contravention, ‘‘(e) the circumstances in which the contravention took because of the contravention; and place; and ‘‘(f) whether or not the person in contravention has previously been found by the Court in proceedings under ‘‘(g) the relationship of the parties to the transaction constithis Act to have engaged in any similar conduct; and tuting the contravention; and ‘‘(h) the matters set out in section 42ZH(2) (interrelationship of civil remedy orders). ‘‘Compensatory orders ‘‘42ZB When Court may make compensatory orders ‘‘(1) The Court may make a compensatory order, on application by the Commission or any other person, if the Court is satisfied that— ‘‘(a) there is a contravention of a civil remedy provision; and 81 Securities Legislation Part 1 cl 27 ‘‘(b) a person (the aggrieved person) has suffered, or is likely to suffer, loss or damage because of the contravention. ‘‘(2) The Court may make a compensatory order whether or not the aggrieved person is a party to the proceedings. ‘‘(3) However, the Court must not make a compensatory order under this section for a contravention of an investment advisers’ and brokers’ disclosure obligation or exemption. ‘‘42ZC Terms of compensatory orders ‘‘(1) If section 42ZB applies, the Court may make any order it thinks just to compensate an aggrieved person in whole or in part for the loss or damage, or to prevent or reduce that loss or damage, including an order (without limitation) to— ‘‘(a) direct the person in contravention to pay to the aggrieved person the amount of the loss or damage: ‘‘(b) direct the person in contravention to refund money or return property to the aggrieved person: ‘‘(c) if a contract has been entered into between the person in contravention and the aggrieved person,— ‘‘(i) vary the contract or any collateral arrangement as specified in the order and, if the Court thinks fit, declare the contract or arrangement to have had effect as so varied on and after a date before the order was made, as specified in the order: ‘‘(ii) cancel the contract and, if the Court thinks fit, declare the cancellation to have had effect on and after a date before the order was made, as speci- fied in the order: ‘‘(iii) require the person in contravention to take any action the Court thinks fit to reinstate the parties as nearly as may be in their former positions. ‘‘(2) The Court may, if the proceedings were conducted (in whole or part) by the Commission, direct that the Commission’s costs in conducting the proceedings be paid from any amounts recovered under a compensatory order. ‘‘(3) Subsection (2) does not limit section 43T. 82 Part 1 cl 27 Securities Legislation ‘‘Civil remedy order for investment advisers’ or brokers’ disclosure obligations ‘‘42ZD When Court may make civil remedy order for investment advisers’ or brokers’ disclosure obligations ‘‘(1) The Court may make a civil remedy order described in section 42ZE against an investment adviser or investment broker, on application by an entitled person, if the Court is satisfied that— ‘‘(a) the adviser or broker has contravened an investment advisers’ or brokers’ disclosure obligation or exemption; and ‘‘(b) if the adviser or broker had complied with that obligation or exemption, a reasonable person in the position of the entitled person would have— ‘‘(i) not used that adviser or proceeded with investment advice given by that adviser; or ‘‘(ii) not used that broker or paid or delivered investment money or investment property to that broker; or ‘‘(iii) acted in a way that was materially different from the way the entitled person acted in relation to the advice or services of the adviser or broker. ‘‘(2) An entitled person is any person who has received investment advice from that investment adviser or whose investment money or investment property has been paid or delivered to that investment broker. ‘‘(3) It does not matter whether or not the investment adviser or investment broker has previously contravened an investment advisers’ or brokers’ disclosure obligation or exemption, or whether or not the entitled person has suffered any loss as a result of the contravention. ‘‘42ZE Terms of civil remedy order for investment advisers’ or brokers’ disclosure obligations ‘‘(1) A civil remedy order under section 43ZD may order the investment adviser or investment broker to pay to the entitled person an amount determined by the Court. ‘‘(2) The maximum amount of a pecuniary order is— ‘‘(a) in the case of an individual, $100,000; and ‘‘(b) in the case of a body corporate, $300,000. 83 Securities Legislation Part 1 cl 27 ‘‘Other civil remedy orders ‘‘42ZF When Court may make other civil remedy orders ‘‘(1) The Court may, on application by the Commission or any other person, make a civil remedy order described in section 42ZG if the Court is satisfied on reasonable grounds that a person has contravened or intends to contravene a civil remedy provision. ‘‘(2) However, the Court must not make a civil remedy order of that kind for a contravention of a continuous disclosure obligation or exemption or an investment advisers’ or brokers’ obligation or exemption. ‘‘42ZG Terms of other civil remedy orders A civil remedy order under section 42ZF may— ‘‘(a) restrain the exercise of rights attaching to securities, or the exercise of relevant interests, or declare an exercise of those rights or relevant interests to be void and of no effect: ‘‘(b) restrain the issue or allotment of securities or restrain any distribution due in relation to securities: ‘‘(c) restrain the acquisition or disposal of securities or of relevant interests or restrain the registration of any transfer of that kind: ‘‘(d) direct the disposal of securities or of relevant interests (including the person or class of person to which they must, or must not, be disposed of) and direct the payment of the proceeds of any disposal: ‘‘(e) require securities to be forfeited and require the public issuer to cancel the forfeited securities: ‘‘(f) cancel an agreement for the acquisition or disposal of securities or relevant interests. ‘‘Interrelationship of civil remedies ‘‘42ZH Interrelationship of civil remedy orders ‘‘(1) The Court may make a civil remedy order of one kind against a person even though the Court has made another civil remedy order of a different kind against the person for the same conduct. 84 Part 1 cl 27 Securities Legislation Examples The Court may make a compensatory order and a pecuniary penalty order for the same conduct. The Court may make a civil remedy order requiring forfeiture of securities and declaring a previous exercise of voting rights attaching to those securities to be void. ‘‘(2) However, in determining whether to make a civil remedy order (order A) and, if it is made, its amount or effect, the Court must have regard to— ‘‘(a) whether another civil remedy order (order B) has been imposed on the person for a contravention involving the conduct concerned in the application for order A; and ‘‘(b) if so, the amount or effect of order B. ‘‘42ZI Only one pecuniary penalty order may be made for same conduct If conduct by a person constitutes a contravention of 2 or more civil remedy provisions, proceedings may be brought against that person for the contravention of any one or more of the provisions, but no person is liable to more than one pecuniary penalty order for the same conduct. ‘‘General ‘‘42ZJ Standard of proof for civil remedies The proceedings under this subpart are civil proceedings and the usual rules of the Court and rules of evidence and procedure for civil proceedings apply (including the standard of proof). ‘‘42ZK Time limit for applying for civil remedies ‘‘(1) An application for a pecuniary penalty order, a civil remedy order under section 42ZD, or other civil remedy order under section 42ZF may be made at any time within 2 years after the date on which the matter giving rise to the contravention was discovered or ought reasonably to have been discovered. ‘‘(2) The usual time limits apply to all applications for other civil remedy orders. 85 Securities Legislation Part 1 cl 27 ‘‘Subpart 5—Criminal offences and penalties ‘‘Penalties for offences ‘‘43 Penalties for failing to comply with Part 1 ‘‘(1) A person who commits an offence against any of the sections set out in subsection (2) is liable on conviction on indictment to— ‘‘(a) in the case of an individual, imprisonment for a term not exceeding 5 years or a fine not exceeding $300,000, or to both: ‘‘(b) in the case of a body corporate, a fine not exceeding $1,000,000. ‘‘(2) The sections are— ‘‘(a) section 8F (criminal liability for insider conduct): ‘‘(b) section 11A (criminal liability for false or misleading statement or information): ‘‘(c) section 11D (criminal liability for false or misleading appearance of trading, etc). ‘‘43A Penalties for failing to comply with Part 2 ‘‘(1) A person who commits an offence against section 19ZD (offence for failure to comply with directors’ and officers’ disclosure obligation) is liable on summary conviction to a fine not exceeding $30,000. ‘‘(2) A person who commits an offence against any of the following sections is liable on summary conviction to a fine not exceeding $10,000: ‘‘(a) section 19ZF (offences relating to directors’ and officers’ ‘‘(b) section 32 (conditions of exemption for trustee corpora- ‘‘(c) section 35E (offences relating to substantial holdings interests register): tions and nominee companies): register): ‘‘(d) section 35H (offence for failing to publish information on substantial holdings or disclosures). ‘‘43B Penalties for failing to comply with Part 2B ‘‘(1) A person who commits an offence against section 36ZX (offence for failing to comply with monitoring of securities exchange provisions) is liable on summary conviction to a fine not exceeding $30,000. 86 Part 1 cl 27 Securities Legislation ‘‘(2) A person who commits an offence against any of the following sections is liable on summary conviction to a fine not exceeding $10,000 for every day or part of a day during which the contravention occurs: ‘‘(a) section 36A(1) (no holding out as securities exchange ‘‘(b) section 36B(1) (no operation of securities markets unless registered): unless registered (if restriction applies)): ‘‘(c) section 36G(1) (registered exchange must operate securities markets with conduct rules that include required matters and have effect): ‘‘(d) section 36P(1) (registered exchange must not operate new securities market if proposed conduct rules or changes not approved): ‘‘(e) section 36Z (offence for breach of terms or conditions of authorisation). ‘‘(3) A person who commits an offence against section 36Q(1) (conduct rules must be available for public inspection) is liable on summary conviction to a fine not exceeding $5,000. ‘‘(4) A person who commits an offence against section 36U(1)(a) (effect of exceeding control limit) is liable on summary conviction to a fine not exceeding $1,000 for every day or part of a day during which the contravention occurs. ‘‘43C Penalties for failing to comply with Part III ‘‘(1) A person who commits an offence against section 38 (dealers in futures contracts must be authorised) is liable on conviction on indictment— ‘‘(a) in the case of an individual, to imprisonment for a term not exceeding 3 years or to a fine not exceeding $100,000, or to both: ‘‘(b) in the case of a body corporate, to a fine not exceeding $300,000. ‘‘(2) A person who commits an offence against any of the following sections is liable on summary conviction to a fine not exceeding $10,000 for every day or part of a day during which the contravention occurs: ‘‘(a) section 37A(1) (no holding out as futures exchange unless authorised): ‘‘(b) section 37B(1) (no operation of futures markets unless authorised (if restriction applies)). 87 Securities Legislation Part 1 cl 27 ‘‘43D Penalties for failing to comply with Part 4 ‘‘(1) A person who commits an offence against either of the following sections is liable on summary conviction to a fine not exceeding $300,000 and, if the offence is a continuing one, to a further fine not exceeding $10,000 for every day or part of a day during which the offence is continued: ‘‘(a) section 41S (offence of deceptive, misleading, or confusing advertisement): ‘‘(b) section 41T (recommending, or receiving money for, illegal offer). ‘‘(2) A person who commits an offence against either of the sections set out in subsection (3) is liable on summary conviction to a fine not exceeding— ‘‘(a) in the case of an individual, $100,000; or ‘‘(b) in the case of a body corporate, $300,000. ‘‘(3) The sections are— ‘‘(a) section 41Q (offence for failure to comply with disclosure obligation): ‘‘(b) section 41R (offence of deceptive, misleading, or confusing disclosure). ‘‘43E Penalties for failing to comply with this Part ‘‘(1) A person who commits an offence against any of the sections set out in subsection (2) is liable on conviction on indictment— ‘‘(a) in the case of an individual, to imprisonment for a term not exceeding 3 years or to a fine not exceeding $100,000, or to both: ‘‘(b) in the case of a body corporate, to a fine not exceeding $300,000. ‘‘(2) The sections are— ‘‘(a) section 43H (offence of contravening management ban- ‘‘(b) section 43I (persons automatically banned from ‘‘(c) section 43M (offence of contravening investment adviser ‘‘(d) section 43N (persons automatically banned from investning order): management): or broker banning order): ment adviser or broker activities). ‘‘(3) A person who commits an offence against section 42L (offence for failing to comply with Commission’s orders) is liable on summary conviction to a fine not exceeding $30,000. 88 Part 1 cl 27 Securities Legislation ‘‘Management bans ‘‘43F When Court may make management banning orders ‘‘(1) The Court may, on application by an entitled person, make a management banning order against a person (A) if— ‘‘(a) A has been convicted of an offence against Part 1 (dealing misconduct) or a pecuniary penalty order has been made against A for a contravention of that Part; or ‘‘(b) A has, while a director of an incorporated or unincorporated body, persistently contravened this Act or, if the incorporated or unincorporated body has so contravened, persistently failed to take all reasonable steps to obtain compliance with this Act; or ‘‘(c) A has been prohibited in an overseas jurisdiction from carrying on activities that the Court is satisfied are substantially similar to any of the activities referred to in section 43G in connection with a contravention of any law relating to the trading of securities. ‘‘(2) An entitled person is— ‘‘(a) the Commission: ‘‘(b) the Registrar of Companies: ‘‘(c) an incorporated or unincorporated body that— ‘‘(i) A is a director of at the time of the application; or ‘‘(ii) A was a director of at the time of the event that triggers the making of the order under subsection (1): ‘‘(d) the liquidator of an incorporated or unincorporated body referred to in paragraph (c): ‘‘(e) a person who is, or has been, a holder of securities (and, for this purpose, security has the same meaning as in the Securities Act 1978) or creditor of an incorporated or unincorporated body referred to in paragraph (c). ‘‘43G Terms of management banning orders A management banning order may prohibit or restrict the person (without the leave of the Court) from being a director or promoter of, or in any way (whether directly or indirectly) being concerned or taking part in the management of, an incorporated or unincorporated body for a period stated in the order of 10 years or less. 89 Securities Legislation Part 1 cl 27 ‘‘43H Offence of contravening management banning order A person who acts in contravention of a court order under section 43F commits an offence (see section 43E for the maximum penalty of 3 years’ imprisonment and a $100,000 fine for an individual or a $300,000 fine for a body corporate). ‘‘43I Persons automatically banned from management ‘‘(1) This section applies to a person if the person has been convicted of an offence against Part 1 (dealing misconduct) or a pecuniary penalty order has been made against the person for a contravention of that Part. ‘‘(2) The person must not, for the period of 5 years after the conviction or making of the order (without the leave of the Court) be a director or promoter of, or in any way (whether directly or indirectly) be concerned or take part in the management of, an incorporated or unincorporated body (other than an overseas company or an incorporated or unincorporated body that does not carry on business in New Zealand). ‘‘(3) A person who acts in contravention of this section commits an offence (see section 43E for the maximum penalty of 3 years’ imprisonment and a $100,000 fine for an individual or a $300,000 fine for a body corporate). ‘‘43J Miscellaneous provisions on management bans in Companies Act 1993, Securities Act 1978, and Securities Markets Act 1988 ‘‘(1) If conduct by a person constitutes grounds for making an order under any 1 or more of section 43F of this Act, section 60A of the Securities Act 1978, and section 383 of the Companies Act 1993, proceedings may be brought against that person under any 1 or more of those provisions, but no person is liable to more than 1 order under those provisions for the same conduct. ‘‘(2) A reference in any enactment to a person who is prohibited from being a director or promoter of, or being concerned or taking part in the management of, a company under section 382, 383, or 385 of the Companies Act 1993 must be read as extending also to a person who is prohibited from being a director or promoter of, or being concerned or taking part in the management of, an incorporated or unincorporated body under section 43F or section 43I. 90 Part 1 cl 27 Securities Legislation ‘‘(3) Subsection (2) does not apply if the enactment provides that it does not apply. ‘‘Investment adviser or broker bans ‘‘43K When Court may make banning orders for investment adviser or broker activities The Court may, on application by the Commission or any other person, make an investment adviser or broker banning order against a person if the Court is satisfied that— ‘‘(a) the person has been convicted of an offence against Part 1 (dealing misconduct) or a pecuniary penalty order has been made against the person for a contravention of that Part; or ‘‘(b) the person has been convicted of an offence against section 41S (offence of deceptive, misleading, or confusing advertisement) or section 41T (recommending, or receiving money for, illegal offer) or a pecuniary penalty order has been made against the person for a contravention of either of those sections; or ‘‘(c) the person has been convicted of an offence against the Securities Act 1978 or a pecuniary penalty order has been made against the person under that Act; or ‘‘(d) the person has been convicted of a crime involving dishonesty as defined in section 2(1) of the Crimes Act 1961; or ‘‘(e) the person has persistently contravened section 13 (general dealing misconduct prohibition), Part 4 (investment advisers and brokers), or the Securities Act 1978; or ‘‘(f) the person has been prohibited in an overseas jurisdiction from carrying on activities that the Court is satis- fied are substantially similar to any of the activities referred to in section 43L. ‘‘43L Terms of investment adviser or broker banning orders An investment adviser or broker banning order may prohibit or restrict the person from doing all or any of the following things, without the leave of the Court, for a period stated in the order of 10 years or less: ‘‘(a) giving investment advice to, or receiving investment money or investment property from, the public: 91 Securities Legislation Part 1 cl 27 ‘‘(b) being a director or promoter of, or in any way, whether directly or indirectly, being concerned or taking part in the management of, any company or business that is an investment adviser or an investment broker: ‘‘(c) being an employee or agent of an investment adviser or an investment broker in a capacity that allows the person to take part in the giving of investment advice to, or receiving investment money or investment property from, the public. ‘‘43M Offence of contravening investment adviser or broker banning order A person who acts in contravention of a court order under section 43K commits an offence (see section 43E for the maximum penalty of 3 years’ imprisonment and a $100,000 fine for an individual or a $300,000 fine for a body corporate). ‘‘43N Persons automatically banned from investment adviser or broker activities ‘‘(1) This section applies to a person if— ‘‘(a) the person has been convicted of an offence against Part 1 (dealing misconduct) or a pecuniary penalty order has been made against the person for a contravention of that Part; or ‘‘(b) the person has been convicted of an offence against section 41S (offence of deceptive, misleading, or confusing advertisement) or section 41T (recommending, or receiving money for, illegal offer) or a pecuniary penalty order has been made against the person for a contravention of either of those sections; or ‘‘(c) the person has been convicted of a crime involving dishonesty as defined in section 2(1) of the Crimes Act 1961. ‘‘(2) The person must not, for the period of 5 years after the conviction or making of the order, without the leave of the Court,— ‘‘(a) give investment advice to, or receive investment money or investment property from, the public: ‘‘(b) be a director or promoter of, or in any way, whether directly or indirectly, be concerned or take part in the 92 Part 1 cl 27 Securities Legislation management of, any company or business that is an investment adviser or an investment broker: ‘‘(c) be an employee or agent of an investment adviser or an investment broker in a capacity that allows the person to take part in the giving of investment advice to, or receiving investment money or investment property from, the public. ‘‘(3) A person who acts in contravention of this section commits an offence (see section 43E for the maximum penalty of 3 years’ imprisonment and a $100,000 fine for an individual or a $300,000 fine for a body corporate). ‘‘43O General provisions for bans and banning orders ‘‘(1) The Registrar of the Court must, as soon as practicable after the making of a banning order by a Court under this Part,— ‘‘(a) give notice to the Registrar of Companies and the Commission that the order has been made; and ‘‘(b) give notice in the Gazette of the name of the person against whom the order is made and the period or dates for which the ban applies. ‘‘(2) A person intending to apply for the leave of the Court to override a ban imposed by or under section 43F, 43I, 43K, or 43N must give to the Commission not less than 10 days’ written notice of that person’s intention to apply. ‘‘Court orders relating to investment brokers’ accounts ‘‘43P When Court may make orders relating to investment brokers’ accounts The Court may, on application by the Commission or any other person, make an order described in section 43Q against a person (A) or any associated persons of A if— ‘‘(a) any of the following apply: ‘‘(i) an investigation has been commenced into the conduct of A that may constitute a contravention of an investment brokers’ obligation: ‘‘(ii) a prosecution has been commenced against A for a contravention of an investment brokers’ obligation: ‘‘(iii) civil proceedings have been commenced against A for a contravention of an investment brokers’ obligation; and 93 Securities Legislation Part 1 cl 27 ‘‘(b) the Court thinks the order necessary or desirable for the purpose of protecting the interests of a person to whom A may be liable to pay money or transfer property under a compensatory order or otherwise. ‘‘43Q Terms of orders relating to investment brokers’ accounts ‘‘(1) If section 43P applies, the Court may order A or any associated persons of A— ‘‘(a) not to remove from New Zealand, transfer, charge, or otherwise deal with any of A’s property or funds except with the prior approval of the Court and subject to the terms and conditions that the Court specifies: ‘‘(b) to place in a trust account any money received for investment: ‘‘(c) to take any other action that is stated in the order to preserve the interests of the investment broker’s clients and creditors. ‘‘(2) Any money placed in a trust account under subsection (1) may, after it has ceased to be subject to an order, be applied for the purposes for which it was received. ‘‘Time for laying information for summary offences ‘‘43R Time for laying information for summary offences ‘‘(1) Any information for an offence against this Act punishable on summary conviction may be laid at any time within 3 years after the date of the offence. ‘‘(2) Subsection (1) applies despite section 14 of, or anything else to the contrary in, the Summary Proceedings Act 1957. ‘‘Subpart 6—General ‘‘43S Evidence not otherwise admissible In the exercise of its jurisdiction under this Act, the Court may receive in evidence any statement, document, or information that would not be otherwise admissible that may in its opinion assist it to deal effectively with the matter. ‘‘43T Court may order payment of Commission’s costs If the Commission brings proceedings under this Part and the Court makes any order against a person under this Part, the 94 Part 1 cl 27 Securities Legislation Court may also order that person to pay the Commission’s costs and expenses in conducting the proceedings. ‘‘43U Orders to secure compliance The Court may, for the purpose of securing compliance with any other order it makes under this Part, direct a person to do or refrain from doing a specified act. ‘‘43V Giving notice of applications for Court orders Before making an order under this Part, the Court may direct the person making the application for the order to— ‘‘(a) give notice of the application to those persons the Court thinks fit: ‘‘(b) publish notice of the application in the manner the Court thinks fit. ‘‘43W General provisions as to Court’s orders ‘‘(1) An order under this Part may be made on the terms and conditions the Court thinks fit. ‘‘(2) The Court may revoke, vary, or suspend an order made under this Part on the terms and conditions the Court thinks fit. ‘‘43X Persons entitled to appear before Court The following persons are entitled to appear and be heard at the hearing of an application to the Court under this Part: ‘‘(a) the applicant: ‘‘(b) the public issuer: ‘‘(c) a person who is alleged to have suffered, or to be likely to suffer, loss or damage because of an alleged contravention (whether that person or another person makes the allegation): ‘‘(d) the Commission: ‘‘(e) the relevant registered exchange: ‘‘(f) a person directed to be given notice of the application: ‘‘(g) with the leave of the Court, any other person. ‘‘43Y Knowledge of matters presumed if employee or agent knows matters In any proceedings under this Act, it is presumed, in the absence of proof to the contrary, that a person knew, at a material time, of any matter if, at that time, an employee or 95 Securities Legislation Part 1 cl 27 agent of that person knew of the matter in his or her capacity as employee or agent. ‘‘43Z No pecuniary penalty and fine for same conduct A person cannot be ordered to pay a pecuniary penalty and be liable for a fine under this Act for the same conduct.’’ (2) The Investment Advisers (Disclosure) Act 1996 is consequentially repealed. Amendments to exemption and regulation empowering provisions 28 New sections 48 to 49E and heading substituted The principal Act is amended by repealing sections 48 and 49, and substituting the following heading and sections: ‘‘Exemptions granted and removed by Commission ‘‘48 Exemptions granted by Commission ‘‘(1) The Commission may, in its discretion and on the terms and conditions (if any) that it thinks fit, by notice in the Gazette,— ‘‘(a) exempt any transaction, class of transactions, class of persons, or class of relevant interests, acquisitions, or disposals from compliance with any directors’ and officers’ disclosure obligation or obligations: ‘‘(b) exempt any person or class of persons, any transaction or class of transactions, or any class of relevant interests, substantial holdings, or relevant events from compliance with any substantial security holders’ disclosure obligation or obligations: ‘‘(c) exempt any person or class of persons, any transaction or class of transactions, or any class of investment advice (for example, advice given by telephone) or investment brokers services from compliance with any investment advisers’ or investment brokers’ disclosure obligation or obligations. ‘‘(2) The exemption has effect according to its tenor. ‘‘48A Commission must notify reasons for exemption ‘‘(1) The Commission’s reasons for granting an exemption (including why the exemption is appropriate) must be notified in the Gazette together with the exemption. 96 Part 1 cl 28 Securities Legislation ‘‘(2) However, the Commission may defer notifying or not notify the reasons for granting an exemption if the Commission is satisfied that it is proper to do so on the ground of commercial confidentiality. ‘‘48B Commission may vary or revoke exemption ‘‘(1) The Commission may vary the exemption in the same way as it may grant the exemption under section 48. ‘‘(2) The Commission may revoke the exemption by notice in the Gazette. ‘‘48C Commission may designate persons as not exempt from disclosure obligations ‘‘(1) The Commission may, by notice in the Gazette, designate a person as a person that is not exempt under section 6(1)(a) to (f) (in relation to either subpart 2 or subpart 3 of Part 2) or under section 31. ‘‘(2) The Commission may exercise that power if it is satisfied that the exemption is being used for purposes of circumventing, evading, or defeating the purpose of the subpart that will (in whole or part) apply as a result of the designation, taking into account the nature, substance, and economic effect of the interest or relationship or other facts (and not the mere form). ‘‘(3) The Commission may, by notice in the Gazette, revoke a designation. ‘‘(4) A notice under this section has effect according to its tenor. ‘‘(5) A notice under this section takes effect from the date stated in the notice (which must not be earlier than the date of the Gazette notice). ‘‘48D Requirements for Commission for designations of persons as not exempt ‘‘(1) Before designating a person as not exempt under section 48C, the Commission must— ‘‘(a) do everything reasonably possible on its part to advise the person of the proposed designation; and ‘‘(b) give the person a reasonable opportunity to make submissions to the Commission on the proposal. 97 Securities Legislation Part 1 cl 28 ‘‘(2) Subsection (1) does not apply to a designation if the Commission considers that it is desirable in the public interest for the exemption to be removed urgently. ‘‘(3) Failure to comply with subsection (1) does not invalidate the designation. ‘‘(4) The Commission must list on its website all persons that are currently designated (and may also publicly notify them by any other means). ‘‘Regulations ‘‘48E Regulations requiring continuous disclosure by public issuers ‘‘(1) The Governor-General may, on the recommendation of the Minister in accordance with section 48F or section 48G, make regulations for the purpose of providing, under section 19C, for continuous disclosure by public issuers of material information that is not generally available to the market. ‘‘(2) Those regulations may— ‘‘(a) declare that section 19C applies to a registered exchange: ‘‘(b) contain requirements for the purpose of requiring public issuers that are parties to listing agreements with that exchange to notify information about events or matters as they arise (being material information that is not generally available to the market) for the purpose of that information being made available to participants in the registered exchange’s market: ‘‘(c) determine the form in which, how, and when that information must be made available to participants in the registered exchange’s market, or provide who may determine any of these matters: ‘‘(d) determine the form of, method of, and any additional details required with, the notification of that information, or provide who may determine any of these matters: ‘‘(e) exempt (on terms and conditions, if any) persons, classes of persons, information, and classes of information from compliance with any provision or provisions of the regulations: 98 Part 1 cl 28 Securities Legislation ‘‘(f) provide for a specified person or persons to exempt (on terms and conditions, if any) persons, classes of persons, information, and classes of information from compliance with any provision or provisions of the regulations, and to vary and revoke those exemptions: ‘‘(g) provide for a specified person or persons to carry out functions under the regulations, and the powers and procedures of that person or persons: ‘‘(h) require fees and charges to be paid in connection with the performance or exercise of a function or power referred to in paragraph (f) or paragraph (g), and prescribe those fees and charges or a means by which they may be calculated or ascertained: ‘‘(i) provide for transitional provisions. ‘‘(3) A failure to comply with section 48F(3) or section 48G(2)(b) to (d) does not invalidate any regulations made under this section. ‘‘48F Requirements for regulations replacing continuous disclosure listing rules ‘‘(1) This section applies if the Minister proposes to recommend regulations to declare that section 19C applies to a registered exchange. ‘‘(2) The Minister may make a recommendation under section 48E if the Minister— ‘‘(a) has had regard to the purpose of subpart 1 of Part 2, the criteria stated in section 19A, and any other matters he or she considers relevant; and ‘‘(b) is satisfied that, over time, the continuous disclosure provisions of the registered exchange’s listing rules, or the registered exchange’s administration of those provisions, has not achieved the purpose of that subpart. ‘‘(3) The Minister must, before making that recommendation,— ‘‘(a) give at least 3 months’ written notice of the proposed recommendation, and of the Minister’s reasons for his or her opinion under subsection (2)(b), to— ‘‘(i) the Commission; and ‘‘(ii) the relevant registered exchange; and ‘‘(iii) any other persons that the Minister thinks are representative of the interests of persons likely to be substantially affected by the proposal; and 99 Securities Legislation Part 1 cl 28 ‘‘(b) have regard to any submissions made by those persons within the notice period given; and ‘‘(c) give at least 14 days’ written notice to the persons in paragraph (a), and in the Gazette, of his or her decision to do so and of the Minister’s reasons for his or her opinion under subsection (2)(b). ‘‘48G Ongoing requirements for continuous disclosure regulations ‘‘(1) This section applies if the Minister proposes to recommend regulations to amend, revoke, or replace regulations made under section 48E. ‘‘(2) The Minister must, before making a recommendation under section 48E,— ‘‘(a) have regard to the purpose of subpart 1 of Part 2, the criteria stated in section 19A, and any other matters he or she considers relevant; and ‘‘(b) give written notice of the proposed recommendation to— ‘‘(i) the Commission; and ‘‘(ii) the relevant registered exchange; and ‘‘(iii) any other persons that the Minister thinks are representative of the interests of persons likely to be substantially affected by the proposal; and ‘‘(c) have regard to any submissions made by those persons within the notice period given; and ‘‘(d) give at least 14 days’ written notice to the persons in paragraph (b), and in the Gazette, of his or her decision to do so. ‘‘49 Regulations concerning directors’ and officers’ disclosure obligations ‘‘(1) The Governor-General may, by Order in Council made on the recommendation of the Minister in accordance with subsection (2), make regulations for the purpose of— ‘‘(a) declaring any class or classes of persons not to be officers for the purposes of this Act: ‘‘(b) prescribing further matters relating to a relevant interest, or acquisition or disposal of a relevant interest, that must be disclosed by directors and officers under 100 Part 1 cl 28 Securities Legislation subpart 2 of Part 2, which may include (without limitation): ‘‘(i) the nature of the relevant interest: ‘‘(ii) the number and class of securities to which the relevant interest relates or related: ‘‘(iii) the date of the disclosure obligation becoming applicable, or the date of the acquisition or ‘‘(iv) the consideration paid or received for the acquisi- ‘‘(v) details as to the circumstances in which the disposal: tion or disposal: acquisition or disposal occurred: ‘‘(vi) the date of the last disclosure by the director or officer: ‘‘(c) determining when the disclosure in paragraph (b) is required (including by requiring disclosure only on request) and prescribing the form of or for, and the method of, disclosure, or providing for the relevant registered exchange to determine that form or method and for the way in which it must do so: ‘‘(d) exempting (on terms and conditions, if any) classes of persons, classes of transactions, or classes of relevant interests, acquisitions, or disposals from compliance with any directors’ and officers’ disclosure obligation or obligations: ‘‘(e) exempting (on terms and conditions, if any) persons having relevant interests in issuers that are subject to specified overseas jurisdictions from compliance with any directors’ and officers’ disclosure obligation or obligations. ‘‘(2) The Minister must consult with the Commission before making a recommendation under subsection (1). ‘‘49A Regulations concerning substantial holding disclosure ‘‘(1) The Governor-General may, by Order in Council made on the recommendation of the Minister in accordance with subsection (3), make regulations for the purpose of— ‘‘(a) prescribing further matters relating to a matter, a relevant event, or a substantial holding, that must be disclosed under subpart 3 of Part 2, which may include (without limitation): 101 Securities Legislation Part 1 cl 28 ‘‘(i) the nature of the relevant interests in the substantial holding (including before and after the relevant event in the case of sections 23 and 24): ‘‘(ii) the number, nominal value (if any), and class of securities in which the person has or had the substantial holding (including before and after the relevant event in the case of sections 23 and 24): ‘‘(iii) the date of the relevant event: ‘‘(iv) the terms and conditions (including consideration) of the transaction giving rise to the relevant event: ‘‘(v) details as to the circumstances in which the relevant event occurred: ‘‘(vi) the date of the last disclosure by the person under that subpart in respect of the substantial holding: ‘‘(vii) information relating to the relevant event or substantial holding and concerning other persons who have made disclosures under that subpart: ‘‘(b) prescribing the documents, certificates, and statements that must accompany or be annexed to those disclosures: ‘‘(c) determining when disclosure of the further matters referred to in paragraph (a) is required (including by requiring disclosure only on request): ‘‘(d) prescribing the form of or for, and the method of, disclosure under that subpart (and of any other acknowledgments or notices required by the subpart), or providing for the relevant registered exchange to determine that form or method and providing for the way in which it must do so: ‘‘(e) exempting (on terms and conditions, if any) classes of persons, classes of transactions, or classes of relevant interests, substantial holdings, or relevant events from compliance with any substantial holding disclosure obligation or obligations: ‘‘(f) exempting (on terms and conditions, if any) persons having relevant interests in issuers that are subject to specified overseas jurisdictions from compliance with any substantial holding disclosure obligation or obligations. ‘‘(2) The further matters prescribed for disclosures required by section 22 or 25 may differ according to whether section 31(1)(a), 102 Part 1 cl 28 Securities Legislation (b), or (d) of the Securities Legislation Act 2004 (which contains transitional provisions) applies to the disclosure or not. ‘‘(3) The Minister must consult with the Commission before making a recommendation under subsection (1). ‘‘49B Regulations concerning dealing in futures contracts ‘‘(1) The Governor-General may, by Order in Council made on the recommendation of the Minister, in accordance with subsection (3), make regulations for the purpose of— ‘‘(a) regulating the business and operations of authorised futures exchanges: ‘‘(b) regulating the carrying on of the business of dealing in futures contracts and prescribing requirements that must be met by persons dealing in those contracts including requirements relating to the disclosure of financial and other information and the appointment and duties of trustees: ‘‘(c) regulating the receipt of money and property from clients by persons dealing in futures contracts and the application of that money and property: ‘‘(d) prescribing requirements relating to the deposit of that money and property in separate clients’ funds accounts or safe custody, as the case may be: ‘‘(e) specifying the duties and obligations of those dealers in relation to clients’ funds accounts including obligations to make payments into those accounts: ‘‘(f) providing for the protection of money deposited in clients’ funds accounts and the investment of that money and property deposited in safe custody from claims against persons dealing in futures contracts: ‘‘(g) providing for the Commission to carry out functions under the regulations, and its powers and procedures in doing so. ‘‘(2) Without limiting subsection (1), regulations made under that subsection may also apply to persons acting on behalf of an authorised futures exchange in the same way that they apply to the authorised futures exchange. ‘‘(3) The Minister must consult with the Commission before making a recommendation under subsection (1). 103 Securities Legislation Part 1 cl 28 ‘‘49C Regulations concerning investment advisers and brokers ‘‘(1) The Governor-General may, by Order in Council made on the recommendation of the Minister in accordance with subsection (2), make regulations for the purpose of— ‘‘(a) prescribing any further information that must be disclosed under section 41B or section 41H: ‘‘(b) prescribing any further contents of the disclosure statement and the method of disclosure under Part 4: ‘‘(c) requiring an investment adviser to— ‘‘(i) have a minimum level of professional indemnity insurance, and prescribing the amount of that minimum level; or ‘‘(ii) give an undertaking that the adviser has adequate professional indemnity insurance for the protection of the persons to whom the adviser gives investment advice: ‘‘(d) exempting (on terms and conditions, if any) any person or class of persons, any class of transactions, or any class of investment advice (for example, advice given by telephone) or investment brokers services from compliance with any investment advisers’ or investment brokers’ disclosure obligation or obligations. ‘‘(2) The Minister must consult with the Commission before making a recommendation under subsection (1). ‘‘49D Other regulations ‘‘(1) The Governor-General may, by Order in Council made on the recommendation of the Minister in accordance with subsection (3), make regulations for the purpose of— ‘‘(a) exempting (on terms and conditions, if any) anything from being dealings in securities for the purposes of the general dealing misconduct prohibition: ‘‘(b) exempting (on terms and conditions, if any) conduct from being— ‘‘(i) insider conduct, that is conduct that would otherwise fall within section 8C or section 8D or section 8E: ‘‘(ii) market manipulation, that is conduct that would otherwise fall within section 11 or section 11B: ‘‘(c) requiring information to be provided in a notice under section 36ZD: 104 Part 1 cl 30 Securities Legislation ‘‘(d) prescribing fees and charges to be paid for the purposes of this Act, or a means by which fees and charges may be calculated or ascertained: ‘‘(e) providing for any other matters contemplated by this Act, necessary for its administration, or necessary for giving it full effect. ‘‘(2) Without limiting subsection (1)(d), regulations made under that paragraph may— ‘‘(a) authorise the Commission to require payment of fees and charges— ‘‘(i) in connection with the exercise by the Commission of any power or function conferred on it by or under this Act: ‘‘(ii) on an application to the Commission to exercise any power or function conferred on it by or under this Act: ‘‘(iii) from a person for advice provided by the Commission to the Minister on the exercise of the Minister’s powers or functions in connection with that person under this Act: ‘‘(b) authorise the Commission to require payment of any costs incurred by the Commission. ‘‘(3) The Minister must consult with the Commission before making a recommendation under subsection (1). ‘‘49E Breach of exemption conditions The breach of a term or condition of an exemption provided by regulations made under this Act or by notice under section 48 is a breach of the obligation for which the exemption applies.’’ Miscellaneous 29 Related amendments The enactments specified in the Schedule are amended in the manner set out in that schedule. 30 Transitional provisions relating to new subpart 3 (1) The following transitional provisions apply to the commencement of new subpart 3 (commencement): (a) a person who, immediately before commencement, was a substantial security holder under old section 20 of the 105 Securities Legislation Part 1 cl 30 principal Act is not required to disclose that fact (or any of their existing substantial holdings) by new section 22 (but see paragraph (e)): (b) a person who begins to have a substantial holding only as a result of the commencement of new subpart 3 (for example, because of changes to the meaning of substantial security holder) must disclose that fact in accordance with new section 22 (except that disclosure is not required until the expiry of 14 days after commencement): (c) new sections 23 and 24 apply only to a movement or change that occurs on or after commencement: (d) a person who ceases to have a substantial holding only as a result of the commencement of new subpart 3 must disclose that fact in accordance with new section 25 (except that disclosure is not required until the expiry of 14 days after commencement): (e) old subpart 3 and the rest of the Securities Markets Act 1988 continues to apply as they did immediately before commencement for the purposes of any disclosure required by old subpart 3 before commencement. (2) In this section, new section or new subpart means the section or subpart inserted by section 27 of this Act, and old section or old subpart means the section or subpart as they were immediately before commencement. 31 Transitional provision for existing offences and contravention (1) This section applies to an offence committed under, or a contravention of,— (a) subpart 3 of Part 2 of the principal Act, or the Securities (Substantial Security Holders) Regulations 1997, (b) the Investment Advisers (Disclosure) Act 1996 before before the commencement of section 26; and the commencement of section 27(2); and (c) the principal Act, or any regulations in force under it, (other than the subpart and regulations specified in paragraph (a)) before 1 November 2005. (2) The Investment Advisers (Disclosure) Act 1996 and the principal Act, and the regulations in force under the principal Act, 106 Part 2 cl 33 Securities Legislation continue to have effect as if they had not been amended, repealed, or revoked by this subpart for the purpose of— (a) investigating an offence or contravention to which this (b) commencing or completing proceedings for an offence section applies: or contravention to which this section applies: (c) imposing a penalty or other remedy, or making an order, in relation to an offence or contravention to which this section applies. 3 Part 2 Amendments to takeovers legislation Amendments to Takeovers Act 1993 32 Takeovers Act 1993 called principal Act in this Part In this Part, the Takeovers Act 19933 is called ‘‘the principal Act’’. 1993 No 107 33 Interpretation (1) Section 2(1) of the principal Act is amended by repealing the definition of company, and substituting the following definition: ‘‘company has the same meaning as in section 2(1) of the Companies Act 1993’’. (2) Section 2(1) of the principal Act is amended by omitting, from paragraph (b) of the definition of specified company, the words ‘‘and $20,000,000 or more of assets’’. (3) Section 2 of the principal Act is amended by adding, as subsection (2), the following subsection: ‘‘(2) In sections 32, 33, and 33AA and in subpart 2 of Part 3 (which contain the enforcement powers of the Panel and Court), unless the context otherwise requires, a reference to a person who has contravened the takeovers code or not acted in compliance with the takeovers code is a reference to a person who— ‘‘(a) has contravened the takeovers code or a term or condition of an exemption from the takeovers code; or ‘‘(b) has attempted to contravene the takeovers code or a term or condition of an exemption from the takeovers code; or 107 Securities Legislation Part 2 cl 33 ‘‘(c) has aided, abetted, counselled, or procured any other person to contravene the takeovers code or a term or condition of an exemption from the takeovers code; or ‘‘(d) has induced, or attempted to induce, any other person, whether by threats or promises or otherwise, to contravene the takeovers code or a term or condition of an exemption from the takeovers code; or ‘‘(e) has been in any way, directly or indirectly, knowingly concerned in, or a party to, the contravention by any other person of the takeovers code or a term or condition of an exemption from the takeovers code; or ‘‘(f) has conspired with any other person to contravene the takeovers code or a term or condition of an exemption from the takeovers code.’’ 34 Object of this Act Section 4 of the principal Act is amended by inserting, after paragraph (c), the following paragraph: ‘‘(ca) provide criminal liability for false or misleading statements or information in relation to takeovers of speci- fied companies:’’. 35 New heading inserted The principal Act is amended by inserting, after the Part 3 heading, the heading ‘‘Subpart 1—Investigation and enforcement by Panel’’. 36 New sections 31L to 31MA substituted The principal Act is amended by repealing sections 31L and 31M, and substituting the following sections: ‘‘31L Who may receive evidence ‘‘(1) The Panel may receive evidence through a member, officer, or employee of the Panel, or any 2 or more of them. ‘‘(2) However, if a person who is summoned to give evidence under section 31N requests that the evidence be received by at meeting of the Panel, then— ‘‘(a) subsection (1) does not apply, and the evidence must be received at a meeting of the Panel; and ‘‘(b) the meeting must not be held by a method under clause 4(2A)(b) of the Schedule except with the consent of the person summoned. 108 Part 2 cl 37 Securities Legislation ‘‘31M Admissibility of evidence The Panel may receive in evidence, whether admissible in a court of law or not, any statement, document, information, or matter that,— ‘‘(a) in the opinion of the person receiving it, may assist the Panel in dealing effectively with any matter before it; or ‘‘(b) the Panel may receive under section 31P. ‘‘31MA How evidence may be given ‘‘(1) The Panel may receive evidence— ‘‘(a) given on oath: ‘‘(b) given not on oath: ‘‘(c) if the person receiving the evidence permits it, given by a written statement: ‘‘(d) if the person receiving the evidence thinks it is appropriate, given by a written statement verified on oath: ‘‘(e) given by audio-visual communication, if the Panel and the person giving the evidence agree. ‘‘(2) A member, officer, or an employee of the Panel may administer an oath for the purpose of a person giving evidence on oath.’’ 37 Power to summon witnesses (1) Section 31N of the principal Act is amended by repealing subsection (1), and substituting the following subsection: ‘‘(1) A member of the Panel may issue a summons to a person requiring that person to appear (in the case of a body corporate, to appear by its authorised representative) before the Panel, or a member, officer, or employee of the Panel, in relation to any matter before the Panel and to do any of the following things: ‘‘(a) give evidence: ‘‘(b) give evidence under oath: ‘‘(c) provide any documents or information that are now in the person’s possession or control and that are relevant to the matter.’’ (2) Section 31N(2)(c) of the principal Act is amended by omitting the words ‘‘he or she’’, and substituting the words ‘‘the person’’. (3) Section 31N of the principal Act is amended by repealing subsection (3), and substituting the following subsection: 109 Securities Legislation Part 2 cl 37 ‘‘(3) A summons may be served— ‘‘(a) in the case of a natural person, by delivering it personally to the person summoned or by leaving it at his or her usual place of residence or business at least 24 hours before his or her attendance is required: ‘‘(b) in the case of a body corporate, by leaving it at the body corporate’s usual place of business at least 24 hours before its attendance is required.’’ 38 Panel’s powers in respect of compliance with takeovers code (1) Section 32(2) of the principal Act is amended by inserting, before the word ‘‘restraining’’, the word ‘‘temporary’’. (2) Section 32 of the principal Act is amended by inserting, after subsection (3), the following subsection: ‘‘(3A) If the Panel makes a determination under subsection (3), the Panel must, as soon as reasonably practicable, give written notice of its reasons for the determination to the person the determination concerns.’’ (3) Section 32(4) of the principal Act is amended by inserting, before the word ‘‘restraining’’ wherever it occurs, the word ‘‘temporary’’ in each case. (4) Section 32(4) of the principal Act is amended by adding the following paragraphs: ‘‘(c) make a permanent compliance order (relating to the non-compliance with the takeovers code): ‘‘(d) if it makes any other order under this subsection, also make an order extending, for a reasonable time, the period for which a takeover offer must remain open.’’ (5) Section 32 of the principal Act is amended by inserting, after subsection (4), the following subsection: ‘‘(4A) If the Panel makes an order under this section, the Panel— ‘‘(a) must immediately give written notice to the person to whom the order is directed of the terms of the order; and ‘‘(b) must, as soon as is reasonably practicable, also give that person written notice of the reasons for the order; and ‘‘(c) may also give notice to any other person of those matters.’’ 110 Part 2 cl 40 Securities Legislation (6) Section 32(5) of the principal Act is amended by omitting the words ‘‘A restraining order’’, and substituting the words ‘‘An order’’. (7) Section 32(6) and (7) of the principal Act is amended by omitting the word ‘‘restraining’’ in each place where it occurs. 39 Restraining orders (1) The heading to section 33 of the principal Act is amended by omitting the word ‘‘Restraining’’, and substituting the words ‘‘Temporary restraining’’. (2) Section 33 of the principal Act is amended by inserting, before the first use of the word ‘‘restraining’’, the word ‘‘temporary’’. (3) Section 33 of the principal Act is amended by repealing paragraph (d), and substituting the following paragraph: ‘‘(d) restraining a person from taking any action (including from making any statement or distributing any document) that is or that may reasonably be expected to constitute a contravention of the takeovers code (see section 2(2) for the definition of contravention of the takeovers code):’’. 40 New section 33AA inserted The principal Act is amended by inserting, after section 33, the following section: ‘‘33AA Permanent compliance orders For the purposes of section 32, a permanent compliance order is an order for one or more of the following: ‘‘(a) prohibiting or restricting a person from making any statement or distributing any document that is or that may reasonably be expected to constitute a contravention of the takeovers code (see section 2(2) for the definition of contravention of the takeovers code): ‘‘(b) directing a person to disclose in accordance with the order information for the purpose of securing compliance with the takeovers code: ‘‘(c) directing a person to publish, at the person’s own expense, in the manner and at the times specified in the order corrective statements that are specified in, or are to be determined in accordance with, the order: 111 Securities Legislation Part 2 cl 40 ‘‘(d) for the purpose of securing compliance with any of those orders, an order directing a person to do or refrain from doing a specified act.’’ 41 Heading above section 33E and sections 33E and 34 repealed The principal Act is amended by repealing the heading above section 33E, and sections 33E and 34. 42 New subpart 2 inserted The principal Act is amended by inserting, before section 35, the following subpart: ‘‘Subpart 2—Enforcement by Court ‘‘Overview of enforcement powers and civil remedies ‘‘33E Overview of enforcement powers and civil remedies ‘‘(1) The following enforcement orders and remedies (civil remedy orders) may be available under this subpart for a contravention of the takeovers code: ‘‘(a) an injunction: ‘‘(b) a civil remedy order under section 33I: ‘‘(c) a compensatory order: ‘‘(d) a pecuniary penalty order and declaration of contravention (on application by the Panel only). ‘‘(2) Section 43 covers how those orders interrelate with each other. ‘‘(3) See section 2(2) for the definition of contravention of the takeovers code in this subpart. ‘‘(4) This section is a guide only to the general scheme and effect of this subpart. ‘‘Injunctions ‘‘33F What Court may injunct The Court may, on application by any person in accordance with section 35, grant an injunction restraining a person from engaging in conduct that constitutes or would constitute a contravention of the takeovers code. 112 Part 2 cl 42 Securities Legislation ‘‘33G When Court may grant injunctions and interim injunctions ‘‘(1) The Court may grant an injunction restraining a person from engaging in conduct of a particular kind if— ‘‘(a) it is satisfied that the person has engaged in conduct of that kind; or ‘‘(b) it appears to the Court that, if an injunction is not granted, it is likely that the person will engage in conduct of that kind. ‘‘(2) The Court may grant an interim injunction restraining a person from engaging in conduct of a particular kind if in its opinion it is desirable to do so. ‘‘(3) Subsections (1)(a) and (2) apply whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind. ‘‘(4) Subsections (1)(b) and (2) apply whether or not the person has previously engaged in conduct of that kind or there is an imminent danger of substantial damage to any other person if that person engages in conduct of that kind. ‘‘33H Undertaking as to damages not required by Panel ‘‘(1) If the Panel applies to the Court for the grant of an interim injunction under this subpart, the Court must not, as a condition of granting an interim injunction, require the Panel to give an undertaking as to damages. ‘‘(2) However, in determining the Panel’s application for the grant of an interim injunction, the Court must not take into account that the Panel is not required to give an undertaking as to damages. ‘‘Various civil remedy orders ‘‘33I When Court may make various civil remedy orders The Court may, on application by any person in accordance with section 35, make 1 or more of the civil remedy orders described in section 33J if the Court is satisfied on reasonable grounds that a person has contravened or is contravening or intends to contravene the takeovers code. 113 Securities Legislation Part 2 cl 42 ‘‘33J Terms of various civil remedy orders A civil remedy order under section 33I may— ‘‘(a) restrain the exercise of rights attaching to securities or declare an exercise of those rights to be void and of no effect: ‘‘(b) restrain the issue or allotment of securities or restrain any distribution due in relation to securities: ‘‘(c) restrain the acquisition or disposal of securities or of interests in or rights relating to them or restrain the registration of any transfer of that kind: ‘‘(d) direct the disposal of securities or of interests in or rights relating to them (including the person or class of persons to which they must, or must not, be disposed of) and direct the payment of the proceeds of any disposal: ‘‘(e) require securities to be forfeited and require the public issuer to cancel the forfeited securities: ‘‘(f) cancel an agreement for the acquisition or disposal of securities or interests in or rights relating to them: ‘‘(g) vest securities or interests in or rights relating to them in a trustee for sale on the terms and conditions the Court thinks fit: ‘‘(h) declare an agreement for the acquisition of securities or interests in or rights relating to them to be voidable at the option of the person from whom the securities or interests or rights were acquired: ‘‘(i) if a contract is entered into in contravention of the takeovers code, or a contract contains a provision which, if given effect to, would contravene the takeovers code,— ‘‘(i) vary the contract, in such manner as the Court thinks fit: ‘‘(ii) cancel the contract: ‘‘(iii) require any person who is a party to the contract to make restitution or pay compensation to any other person who is a party to the contract: ‘‘(j) prohibit or restrict a person from making any statement or distributing any document that is or that may reasonably be expected to constitute a contravention of the takeovers code: ‘‘(k) direct a person to disclose in accordance with the order information for the purpose of securing compliance 114 Part 2 cl 42 Securities Legislation with the takeovers code even though the time for doing so may have expired: ‘‘(l) direct a person to publish, at the person’s own expense, in the manner and at the times specified in the order corrective statements that are specified in, or are to be determined in accordance with, the order: ‘‘(m) require a person to comply with any provision of the takeovers code even though the time for doing so may have expired: ‘‘(n) for the purpose of securing compliance with any other order described in this section, direct a person to do or refrain from doing a specified act. ‘‘Compensatory orders ‘‘33K When Court may make compensatory orders ‘‘(1) The Court may make a compensatory order, on application by any person in accordance with section 35, if the Court is satisfied that— ‘‘(a) there is a contravention of the takeovers code; and ‘‘(b) a person (the aggrieved person) has suffered, or is likely to suffer, loss or damage because of the contravention. ‘‘(2) The Court may make a compensatory order whether or not the aggrieved person is a party to the proceedings. ‘‘33L Terms of compensatory orders ‘‘(1) If section 33K applies, the Court may make any order it thinks just to compensate an aggrieved person in whole or in part for the loss or damage, or to prevent or reduce that loss or damage, including an order (without limitation) to— ‘‘(a) direct the person in contravention to pay to the ‘‘(b) direct the person in contravention to refund money or aggrieved person the amount of the loss or damage: return property to the aggrieved person: ‘‘(c) if a contract has been entered into between the person in contravention and the aggrieved person,— ‘‘(i) vary the contract or any collateral arrangement as specified in the order and, if the Court thinks fit, declare the contract or arrangement to have had effect as so varied on and after a date before the order was made, as specified in the order: 115 Securities Legislation Part 2 cl 42 ‘‘(ii) cancel the contract and, if the Court thinks fit, declare the cancellation to have had effect on and after a date before the order was made, as speci- fied in the order: ‘‘(iii) require the person in contravention to take any action the Court thinks fit to reinstate the parties as nearly as may be in their former positions. ‘‘(2) The Court may, if the proceedings were conducted (in whole or part) by the Panel, direct that the Panel’s costs in conducting the proceedings be paid from any amounts recovered under a compensatory order. ‘‘(3) Subsection (2) does not limit section 44F. ‘‘Pecuniary penalty orders and declarations of contravention ‘‘33M When Court may make pecuniary penalty orders and declarations of contravention If the Panel applies for a pecuniary penalty order against a person under this Act in accordance with section 35, the Court— ‘‘(a) must determine whether the person has contravened the takeovers code; and ‘‘(b) must make a declaration of contravention (see sections 33N and 33O) if satisfied that there is a contravention; and ‘‘(c) may order the person to pay a pecuniary penalty that the Court considers appropriate to the Crown (see sections 33P and 33Q) if satisfied that there is a contravention, that the person knew or ought to have known of the conduct that constituted the contravention, and that the contravention— ‘‘(i) materially prejudices the interests of offerees, the specified company, the offeror or acquirer, competing offerors, or any other person involved in or affected by a transaction or step that is or will be regulated by the takeovers code, or that is incidental or preliminary to a transaction or step of that kind; or ‘‘(ii) is likely to materially damage the integrity or reputation of any of New Zealand’s securities markets; or ‘‘(iii) is otherwise serious. 116 Part 2 cl 42 Securities Legislation ‘‘33N Purpose and effect of declarations of contravention ‘‘(1) The purpose of a declaration of contravention is to enable an applicant for a civil remedy order under section 33I or a compensatory order to rely on the declaration of contravention in the proceedings for that order, and not be required to prove the contravention. ‘‘(2) Accordingly, a declaration of contravention is conclusive evidence of the matters that must be stated in it under section 33O. ‘‘33O What declarations of contravention must state A declaration of contravention must state the following: ‘‘(a) the court that made the declaration; and ‘‘(b) the provision of the takeovers code to which the contravention relates or, if the contravention is of an exemption, both the term or condition contravened and the takeovers code provision to which the exemption relates; and ‘‘(c) the person in contravention; and ‘‘(d) the conduct that constituted the contravention and, if a transaction constituted the contravention, the transaction; and ‘‘(e) the specified company to which the conduct related. ‘‘33P Maximum amount of pecuniary penalty The maximum amount of a pecuniary penalty is $500,000 for an individual and $5,000,000 for a body corporate, for each contravention. ‘‘33Q Considerations for Court in determining pecuniary penalty In determining an appropriate pecuniary penalty, the Court must have regard to all relevant matters, including— ‘‘(a) the objectives of the takeovers code; and ‘‘(b) the nature and extent of the contravention; and ‘‘(c) the likelihood, nature, and extent of any damage to the integrity or reputation of any of New Zealand’s securities markets because of the contravention; and ‘‘(d) the nature and extent of any loss or damage suffered by a person referred to in section 33M(c)(i) because of the contravention; and 117 Securities Legislation Part 2 cl 42 ‘‘(e) the circumstances in which the contravention took place; and ‘‘(f) whether or not the person in contravention has previously been found by the Court in proceedings under this Act to have engaged in any similar conduct; and ‘‘(g) the matters set out in section 43 (interrelationship of civil remedy orders). ‘‘General’’. 43 Persons who may apply (1) Section 35(1) of the principal Act is amended by omitting the words ‘‘section 34 of this Act’’, and substituting the words ‘‘section 33F, 33I, or 33K’’. (2) Section 35(3) of the principal Act is amended by omitting the words ‘‘section 34 of this Act’’, and substituting the words ‘‘section 33F, 33I, or 33K’’. (3) Section 35 of the principal Act is amended by inserting, after subsection (3), the following subsection: ‘‘(3A) If the Panel makes a determination under section 32(3)(b) (a determination that the Panel is not satisfied that a person has acted or is acting or intends to act in compliance with the takeovers code), the Panel may make an application to the Court under section 33M.’’ 44 Repeal of sections 36 and 37 The principal Act is amended by repealing sections 36 and 37. 45 Court may have regard to determinations and recommendations by Panel (1) Section 38(1) of the principal Act is amended by omitting the words ‘‘section 34 of this Act’’, and substituting the words ‘‘this subpart’’. (2) Section 38(2) of the principal Act is amended by omitting the words ‘‘section 36 of this Act’’, and substituting the words ‘‘section 33I or 33K’’. 46 Section 39 repealed The principal Act is amended by repealing section 39. 118 Part 2 cl 50 Securities Legislation 47 Revocation, variation, and suspension of orders Section 40 of the principal Act is amended by omitting the words ‘‘under section 36 or section 37 of this Act’’, and substituting the words ‘‘made by the Court under this subpart’’. 48 New section 41 substituted The principal Act is amended by repealing section 41, and substituting the following section: ‘‘41 Court may excuse contravention ‘‘(1) If the Court is satisfied that a person has, by any act or omission, contravened the takeovers code, but that the contravention ought to be excused, the Court may (by order) declare that the act or omission was not a contravention of the code. ‘‘(2) In considering whether the contravention should be excused, the Court may have regard to— ‘‘(a) inadvertence or mistake on the part of the person concerned: ‘‘(b) whether the person was aware of a relevant factor or circumstance: ‘‘(c) circumstances beyond that person’s control: ‘‘(d) any other matters that the Court thinks fit. ‘‘(3) The order has effect according to its tenor. ‘‘(4) This section does not apply to a contravention that the Court considers in an application for a pecuniary penalty order or a compensatory order against a person under this Act.’’ 49 Court may require person to give evidence or produce documents relating to interests in securities (1) Section 42(1) of the principal Act is amended by omitting the words ‘‘section 34 of this Act’’, and substituting the words ‘‘this subpart’’. (2) Section 42(2) of the principal Act is amended by omitting the words ‘‘section 34 of this Act’’, and substituting the words ‘‘this subpart’’. 50 New sections 43 to 43C substituted The principal Act is amended by repealing section 43, and substituting the following sections: 119 Securities Legislation Part 2 cl 50 ‘‘43 Interrelationship of civil remedy orders ‘‘(1) The Court may make a civil remedy order of one kind against a person even though the Court has made another civil remedy order of a different kind against the person for the same conduct. Examples The Court may make a compensatory order and a pecuniary penalty order for the same conduct. The Court may make a civil remedy order requiring forfeiture of securities and declaring a previous exercise of voting rights attaching to those securities to be void. ‘‘(2) However, in determining whether to make a civil remedy order (order A) and, if it is made, its amount or effect, the Court must have regard to— ‘‘(a) whether another civil remedy order (order B) has been imposed on the person for a contravention involving the conduct concerned in the application for order A; and ‘‘(b) if so, the amount or effect of order B. ‘‘43A Only one pecuniary penalty order may be made for same conduct If conduct by a person constitutes a contravention of 2 or more provisions of the takeovers code, proceedings may be brought against that person for the contravention of any one or more of the provisions, but no person is liable to more than one pecuniary penalty order for the same conduct. ‘‘43B Standard of proof for civil remedies The proceedings under this subpart are civil proceedings and the usual rules of the Court and rules of evidence and procedure for civil proceedings apply (including the standard of proof). ‘‘43C Time limit for applying for civil remedies ‘‘(1) An application for a civil remedy order under section 33I or a pecuniary penalty order under section 33M may be made at any time within 2 years after the date on which the matter giving rise to the contravention was discovered or ought reasonably to have been discovered. 120 Part 2 cl 51 Securities Legislation ‘‘(2) The usual time limits apply to all applications for other civil remedy orders.’’ 51 New heading and subparts 3 and 4 inserted The principal Act is amended by repealing section 44, and substituting the following heading and subparts: ‘‘Subpart 3—Offences ‘‘General offences ‘‘44 General offences ‘‘(1) A person must not— ‘‘(a) furnish information, produce a document, or give evidence to the Panel or a member, officer, or employee of the Panel knowing it to be false or misleading; or ‘‘(b) attempt to deceive or knowingly mislead the Panel or a member, officer, or employee of the Panel in relation to any matter before it. ‘‘(2) A person who has been summoned to appear before the Panel or a member, officer, or employee of the Panel must not— ‘‘(a) refuse or fail to appear before the Panel to give evidence: ‘‘(b) refuse to take an oath or affirmation as a witness: ‘‘(c) refuse to answer any question: ‘‘(d) fail or refuse to produce any document or information that the person is required to provide. ‘‘(3) A body corporate contravenes subsection (2)(b) or subsection (2)(c) if its representative appearing for it refuses to take an oath or affirmation as a witness, or refuses to answer any question. ‘‘(4) A person must not act in contravention of any order made by the Panel under section 31X or section 32. ‘‘(5) Every person who contravenes this section commits an offence and is liable on summary conviction to a fine not exceeding $300,000 and, if the offence is a continuing one, to a further fine not exceeding $10,000 for every day or part of a day during which the offence is committed. ‘‘(6) A person must not be convicted of an offence under this section if, in the opinion of the court dealing with the case,— ‘‘(a) the contravention related to matters that were immaterial to the relevant matter before the Panel; or 121 Securities Legislation Part 2 cl 51 ‘‘(b) the contravention ought reasonably to be excused, having regard to all the circumstances of the case. ‘‘(7) A director of a body corporate must not be convicted of an offence under this section in relation to a contravention by the body corporate if, in the opinion of the court dealing with the case, the contravention took place without the director’s knowledge and consent. ‘‘False or misleading statement or information ‘‘44B False or misleading statement or information ‘‘(1) A person must not make a statement or disseminate information, in relation to any transaction or event regulated by the takeovers code or incidental or preliminary to a transaction or event that is or is likely to be regulated by the takeovers code, if— ‘‘(a) a material aspect of the statement or information is false or the statement or information is materially misleading; and ‘‘(b) the person knows or ought reasonably to know that a material aspect of the statement or information is false or that the statement or information is materially misleading; and ‘‘(c) the statement or information is likely to— ‘‘(i) induce a person to trade, or hold, the securities of a specified company; or ‘‘(ii) have the effect of increasing, reducing, maintaining, or stabilising the price for trading in those securities. ‘‘(2) In this section, trade means to acquire or dispose of securities. ‘‘44C Criminal liability for false or misleading statement or information ‘‘(1) A person who contravenes section 44B commits an offence if the person has actual knowledge that the statement or information is false in a material aspect or is materially misleading. ‘‘(2) A person who commits an offence against subsection (1) is liable on conviction on indictment to— ‘‘(a) in the case of an individual, imprisonment for a term not exceeding 5 years or a fine not exceeding $100,000, or to both: 122 Part 2 cl 51 Securities Legislation ‘‘(b) in the case of a body corporate, a fine not exceeding $300,000. ‘‘44D Exception for disclosure by investment advisers or brokers Section 44B does not apply to conduct in relation to a disclosure under Part 4 of the Securities Markets Act 1988 or to conduct in relation to an advice advertisement, a broker advertisement, or a product advertisement to the extent that that conduct is regulated by Part 4 of that Act. ‘‘Subpart 4—General ‘‘44E Jurisdiction of Courts in New Zealand The High Court has exclusive jurisdiction to hear and determine proceedings in New Zealand under this Act, other than proceedings for offences against this Act or appeals under section 31G. ‘‘44F Court may order payment of Panel’s costs If the Panel brings proceedings under this Part and the Court makes any order against a person under this Part, the Court may also order that person to pay the Panel’s costs and expenses in conducting the proceedings. ‘‘44G Giving notice of applications for Court orders Before making an order under this Part, the Court may direct the person making the application for the order to— ‘‘(a) give notice of the application to those persons the Court thinks fit: ‘‘(b) publish notice of the application in the manner the Court thinks fit. ‘‘44H Persons entitled to appear before Court The following persons are entitled to appear and be heard at the hearing of an application to the Court under this Part: ‘‘(a) the applicant: ‘‘(b) the Panel: ‘‘(c) if the specified company’s securities are, or were at the material time, quoted on a registered exchange’s market, that registered exchange: ‘‘(d) the specified company: 123 Securities Legislation Part 2 cl 51 ‘‘(e) a person who is alleged to have suffered, or to be likely to suffer, loss or damage because of an alleged contravention (whether that person or another person makes the allegation): ‘‘(f) a person who was a member or security holder of the specified company at the time that the conduct to which the application relates occurred: ‘‘(g) a person who, at any time within the period of 6 months before the making of the application, has made an offer or offers to acquire securities in the specified company in accordance with the takeovers code: ‘‘(h) a person directed to be given notice of the application: ‘‘(i) with the leave of the Court, any other person. ‘‘44I Knowledge of matters presumed if employee or agent knows matters In any proceedings under this Act, it is presumed, in the absence of proof to the contrary, that a person knew, at a material time, of any matter if, at that time, an employee or agent of that person knew of the matter in his or her capacity as employee or agent. ‘‘44J No pecuniary penalty and fine for same conduct A person cannot be ordered to pay a pecuniary penalty and be liable for a fine under this Act for the same conduct.’’ 52 New Part 4 heading inserted The principal Act is amended by repealing the heading above section 45, and substituting the following heading: ‘‘Part 4 ‘‘Miscellaneous’’. Amendments to takeovers code 53 Takeovers code is called code in this Part In this Part, the Schedule to the Takeovers Code Approval Order 20004 is called ‘‘the code’’. 4 SR 2000/210 124 Part 2 cl 56 Securities Legislation 54 Interpretation (1) Rule 3(1) of the code is amended by omitting, from paragraph (c) of the definition of code company, the words ‘‘and $20,000,000 or more of assets’’. (2) Rule 3(1) of the code is amended by inserting, in its appropriate alphabetical order, the following definition: ‘‘engaging in conduct means doing or refusing to do an act, and includes,— ‘‘(a) omitting to do an act; or ‘‘(b) making it known that an act will or will not be done’’. 55 Offer period Rule 24 of the code is amended by adding the following subclause: ‘‘(4) If the offer period is extended by the Panel by order made under section 32 of the Act, that additional period is included in the offer period for the purposes of this code.’’ 56 New Part 8 added The code is amended by adding the following Part: ‘‘Part 8 ‘‘Market manipulation ‘‘64 Misleading or deceptive conduct A person must not engage in conduct, in relation to any transaction or event that is regulated by this code, or that is incidental or preliminary to a transaction or event that is or is likely to be regulated by this code, that is misleading or deceptive or likely to mislead or deceive. ‘‘64A Defences that may be raised in proceeding for contravention of rule 64 ‘‘(1) In any proceeding against a person (A) for contravention of rule 64, it is a defence if the defendant proves on a balance of probabilities— ‘‘(a) that the contravention was due to a reasonable mistake; or ‘‘(b) that the contravention was due to reasonable reliance on information supplied by another person; or ‘‘(c) that— 125 Securities Legislation Part 2 cl 56 ‘‘(i) the contravention was due to the act or default of another person to an accident or to some other cause beyond the defendant’s control; and ‘‘(ii) the defendant took reasonable precautions and exercised due diligence to avoid the contravention. ‘‘(2) However, this defence— ‘‘(a) is not available in respect of a meeting, or the Panel’s powers, under section 32 of the Act; and ‘‘(b) does not prevent the Court from granting an injunction under section 33F of the Act or making a civil remedy order under section 33I of the Act, if, in each case, the order is directed at preventing or remedying any conduct within rule 64. ‘‘(3) In subclause (1), another person does not include— ‘‘(a) an employee or agent of the defendant; or ‘‘(b) if the defendant is a body corporate, a director, employee, or agent of the defendant. ‘‘64B Defendant must give notice of identity of third party ‘‘(1) A defendant cannot rely on a defence under rule 64A that the contravention was due to reasonable reliance on information supplied by another person or was due to the act or default of another person unless the defendant has first served notice identifying that other person on the party or parties bringing the proceeding. ‘‘(2) The defendant must serve the notice not later than 7 clear days before the hearing of the proceeding begins. ‘‘(3) However, the Court may allow the defendant to rely on a defence specified in subclause (1) even if the defendant has not complied with subclause (1) or subclause (2) or both. ‘‘64C Exception for disclosure by investment advisers or brokers Rule 64 does not apply to conduct in relation to a disclosure under Part 4 of the Securities Markets Act 1988 or to conduct in relation to an advice advertisement, a broker advertisement, or a product advertisement to the extent that that conduct is regulated by Part 4 of that Act.’’ 126 Part 2 cl 59 Securities Legislation Amendments to replace references to takeovers schemes 57 Amendments to replace references to takeovers schemes (1) Section 67C(4) of the Companies Act 1993 is amended by omitting the words ‘‘a takeover scheme under section 4 of the Companies Amendment Act 1963’’, and substituting the words ‘‘a takeover offer made under a takeovers code in force under the Takeovers Act 1993’’. (2) Section 26(3) of the Co-operative Companies Act 1996 is amended by omitting the words ‘‘a takeover scheme under section 4 of the Companies Amendment Act 1963’’, and substituting the words ‘‘a takeover offer made under a takeovers code in force under the Takeovers Act 1993’’. Transitional provisions 58 Transitional provision for acquisitions made or committed to before commencement of this Part No amendment made by this Part requires a person to comply with the principal Act or the code— (a) by reason only of the fact that, on the commencement of this Part, a particular proportion of securities have been acquired in a specified company, whether by that person or any other person before the commencement of this Part; or (b) by reason of the acquisition of securities in a specified company, whether by that person or any other person, on or after the commencement of this Part, if the acquisition arises from the performance of a contractual obligation incurred, or the exercise of a right acquired, before the commencement of this Part. 59 Transitional provision for existing offences and contraventions (1) The principal Act and the code continue to have effect as if they were not amended by this Part for the purpose of— (a) investigating an existing offence or contravention: (b) commencing or completing proceedings for an existing offence or contravention: (c) imposing a penalty or other remedy, or making an order, in relation to an existing offence or contravention. 127 Securities Legislation Part 2 cl 59 (2) In this section, existing offence or contravention means an offence under, or contravention of, the principal Act or the code that was committed or done before the commencement of this Part. 128 Schedule Securities Legislation s 29 Schedule Related amendments Part 1 Related amendments to Securities Markets Act 1988 (1988 No 234) Omit from section 19B(1)(d) the expression ‘‘section 19Q’’ and substitute the expression ‘‘section 48E’’. Omit from section 19C(a) the expression ‘‘section 19Q’’ and substitute the expression ‘‘section 48E’’. Repeal sections 19E to 19S and the headings above sections 19G, 19K, and 19Q. Repeal sections 19ZB and 19ZC and the heading above section 19ZB. Repeal the heading after section 19ZC and substitute: ‘‘Offences’’. Add to section 19ZD(1) the words ‘‘(see section 43A for the maximum penalty of a $30,000 fine)’’. Repeal section 19ZD(2). Repeal section 19ZE. Omit from section 36A(3) the words ‘‘and is liable on summary conviction to a fine not exceeding $10,000 for every day or part of a day during which the contravention occurs’’ and substitute the words ‘‘(see section 43B for the maximum penalty of a $10,000 fine per day)’’. Omit from section 36B(2) the words ‘‘and is liable on summary conviction to a fine not exceeding $10,000 for every day or part of a day during which the contravention occurs’’ and substitute the words ‘‘(see section 43B for the maximum penalty of a $10,000 fine for per day)’’. Omit from section 36F(1)(c) the expression ‘‘section 49’’ and substitute the expression ‘‘section 49D’’. Omit from section 36G(2) the words ‘‘and is liable on summary conviction to a fine not exceeding $10,000 for every day or part of a day during which the contravention occurs’’ and substitute the words ‘‘(see section 43B for the maximum penalty of a $10,000 fine per day)’’. Omit from section 36P(2) the words ‘‘and is liable on summary conviction to a fine not exceeding $10,000 for every day or part of a day during which the contravention occurs’’ and substitute the words 129 Securities Legislation Schedule Part 1—continued ‘‘(see section 43B for the maximum penalty of a $10,000 fine per day)’’. Omit from section 36Q(2) the words ‘‘and is liable on summary conviction to a fine not exceeding $5,000’’ and substitute the words ‘‘(see section 43B for the maximum penalty of a $5,000 fine)’’. Omit from section 36U(2) the words ‘‘and is liable on summary conviction to a fine not exceeding $1,000 for every day or part of a day during which the contravention continues’’ and substitute the words ‘‘(see section 43B for the maximum penalty of a $1,000 fine per day)’’. Omit from section 36Z the words ‘‘and is liable on summary conviction to a fine not exceeding $10,000 for every day or part of a day during which the contravention occurs’’ and substitute the words ‘‘(see section 43B for the maximum penalty of a $10,000 fine per day)’’. Repeal sections 36ZA to 36ZC. Omit from section 36ZF(1)(d) and (2) the expression ‘‘section 49’’ and substitute in each case the expression ‘‘section 49D’’. Omit from section 36ZM(1)(c) the expression ‘‘section 19Q’’ and substitute the expression ‘‘section 48E’’. Omit from section 36ZO(4) the expression ‘‘Part 3’’ and substitute the expression ‘‘section 69P’’. Repeal section 36ZX(2) and substitute: ‘‘(2) See section 43B for the maximum penalty of a $30,000 fine.’’ Omit from section 37A(3) the words ‘‘and is liable on summary conviction to a fine not exceeding $10,000 for every day or part of a day during which the contravention occurs’’ and substitute the words ‘‘(see section 43C for the maximum penalty of a $10,000 fine per day)’’. Omit from section 37B(2) the words ‘‘and is liable on summary conviction to a fine not exceeding $10,000 for every day or part of a day during which the contravention occurs’’ and substitute the words ‘‘(see section 43C for the maximum penalty of a $10,000 fine per day)’’. Repeal section 39 and substitute: ‘‘39 Contravention of section 38 an offence Every person who contravenes section 38 commits an offence (see section 43C for the maximum penalties of 3 years imprisonment and a $100,000 fine for an individual and a $300,000 fine for a body corporate).’’ 130 Schedule Securities Legislation Part 1—continued Insert, above section 44: ‘‘Part 6 ‘‘Miscellaneous ‘‘General provisions’’. Part 2 Related amendments to other Acts Companies Act 1993 (1993 No 105) Insert, after section 151(2)(e): ‘‘(ea) a person who is prohibited from being a director or promoter of or being concerned or taking part in the management of a company under section 60A or 60E of the Securities Act 1978 or section 43F or 43I of the Securities Markets Act 1988:’’ Omit from section 266(4) the words ‘‘or section 383 of this Act’’ and substitute the words ‘‘, section 383 of this Act or section 60A of the Securities Act 1978 or section 43F of the Securities Markets Act 1988’’. Insert, after section 280(1)(k): ‘‘(ka) a person who is prohibited from being a director or promoter of or being concerned or taking part in the management of a company under section 60A or 60E of the Securities Act 1978 or section 43F or 43I of the Securities Markets Act 1988:’’ Repeal section 382(1)(c). Repeal section 383(1)(c)(i) and substitute: ‘‘(i) persistently failed to comply with this Act or the Companies Act 1955, or, if the company has failed to so comply, persistently failed to take reasonable steps to obtain compliance with those Acts; or’’. Insert, after section 383(4): ‘‘(4A) If conduct by a person constitutes grounds for making an order under any 1 or more of this section, section 43F of the Securities Markets Act 1988, and section 60A of the Securities Act 1978, proceedings may be brought against that person under any 1 or more of those provisions, but no person is 131 Securities Legislation Schedule Part 2—continued Companies Act 1993 (1993 No 105)—continued liable to more than 1 order under those provisions for the same conduct.’’ Construction Contracts Act 2002 (2002 No 46) Omit from section 7(1)(a)(ii) the expression ‘‘section 5(7)’’ and substitute the expression ‘‘section 5B(2)’’ Omit from section 7(3) the expression ‘‘section 5’’ and substitute the words ‘‘sections 5 to 5B’’. Omit from section 7(3)(b) the words ‘‘that section’’ and substitute the words ‘‘those sections’’. Electricity Industry Reform Act 1998 (1998 No 88) Omit from section 9(2) the expression ‘‘section 5’’ and substitute the words ‘‘sections 5 to 5B’’. Omit from section 9(2)(b) the words ‘‘that section’’ and substitute the words ‘‘those sections’’. Omit from section 12(1)(a)(ii) the expression ‘‘section 5(7)’’ and substitute the expression ‘‘section 5B(2)’’. Omit from section 70(2)(h) the words ‘‘providing for any matter currently referred to in sections 30 to 35A of the Securities Markets Act 1988’’ and substitute the words ‘‘providing for the Court to make orders directing disclosure, compensatory orders, or other orders described in section 42ZG of the Securities Markets Act 1988, who may apply for the orders, and related matters’’. Fair Trading Act 1986 (1986 No 121) Insert, after section 5, the following sections: ‘‘5A Act does not apply to certain conduct regulated by Securities Markets Act 1988 Nothing in this Act applies to conduct to the extent that it is regulated by sections 11 to 11D and 13 or Part 4 of the Securities Markets Act 1988. ‘‘5B Act does not apply to certain conduct regulated by takeovers code Nothing in this Act applies to conduct to the extent that misleading or deceptive conduct is regulated by the Takeovers Act 1993 or a takeovers code that is in force under that Act.’’ 132 Securities Legislation Maori Reserved Land Amendment Act 1997 (1997 No 101) Omit from section 8(5)(c) the expression ‘‘section 5’’ and substitute the words ‘‘sections 5 to 5B’’. Sharebrokers Act 1908 (1908 No 176) Repeal section 6(1)(c) and substitute: ‘‘(c) a sharebroker has been convicted of an offence against Part 1 (dealing misconduct) of the Securities Markets Act 1988 or a pecuniary penalty order has been made against the person for a contravention of that Part,—’’. Summary Proceedings Act 1957 (1957 No 87) Insert in Part II of the First Schedule, in its appropriate alphabetical order: 8F Securities Markets Act 1988 11A 11D 38 43H 43I 43M 43N Part 3 Related amendments to regulations Securities (Substantial Security Holders) Regulations 1997 (SR 1997/110) Revoke. Schedule Part 2—continued criminal liability for insider conduct criminal liability for false or misleading statement or information criminal liability for false or misleading appearance of trading, etc dealers in futures contracts must be authorised offence of contravening management banning order persons automatically banned from management offence of contravening investment adviser or broker banning order persons automatically banned from investment adviser or broker activities 133 Securities Legislation Schedule Part 3—continued Securities Markets (Disclosure of Relevant Interests by Directors and Officers) Regulations 2003 (SR 2003/382) Revoke regulation 19. Revoke regulation 21 and substitute: ‘‘21 Exemption for directors or officers who disclose substantial holdings A director or officer who has, or who acquires or disposes of, a relevant interest in a security does not have to disclose that fact under section 19T of the Act if— ‘‘(a) the director or officer must make a disclosure under section 22, 23, or 25 of the Act in relation to a substantial holding in the public issuer of the security to which the relevant interest relates or related; and ‘‘(b) the disclosure under that section concerns the same relevant interest; and ‘‘(c) the director or officer discloses in accordance with that section; and ‘‘(d) it is stated in the disclosure made in accordance with that section that the director or officer is a director or officer of the public issuer.’’ Wellington, New Zealand: Published under the authority of the New Zealand Government—2004 5451V16 29-NOV-04 Price code: K 134