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New Zealand Securities Commission |
Last Updated: 10 November 2014
Report on Statement by ABN AMRO Capital (Belgium) N.V. in Freightways Limited's Prospectus
TABLE OF CONTENTS
Introduction
Relationships - the Government and regulatory environment
International Relationships
Securities Markets
CURRENT PUBLIC ISSUES
Enforcement
Law Reform
Market regulation
International
Investors
ANNEXES
Annex 1 - Members of the
Commission
Annex 2 - Appropriations
Annex 3 - Media release on
share scams
Annex 4 - Media release
on Tranz Rail Filing
Annex 5 - Media
releases Tranz Rail settlements
Annex 6 - Media releases
Provenco case
Annex 7 - FSAP
Recommendations
Annex 8 - Media release Geared
Equities
Introduction
The Securities Commission
The Securities Commission is New Zealand's main regulator of the securities markets. It is an independent Crown entity established under the Securities Act 1978. It has not less than five nor more than ten Members appointed by the Governor-General on the recommendation of the Minister of Commerce. Members are knowledgeable and experienced in industry, commerce, economics, law, accountancy, public administration or securities. At least one Member must be a barrister or solicitor of not less than seven years' practice. Members hold office for a term not exceeding five years and may be re-appointed.
Members of the Commission
The Commission currently has a full complement of 10 Members. Profiles of Members are attached at Annex 1. The Chairman is a full time position. Other Members attend regular monthly meetings and conduct Commission business in divisions which meet as required. Members' workloads are generally 3-5 days per month. Members are appointed by the Governor-General on the recommendation of the Minister of Commerce. Chairman Jane Diplock AO was appointed in September 2001 for a five year term expiring on 2 September 2006. Three other Members appointments expire in May 2007.
Role, functions and powers of the Commission
The legislation relevant to the Commission includes:
The role and functions of the Commission include:
To perform these functions the Commission's powers include:
Resourcing - Vote Commerce
The Commission is funded by Government grant via the Vote Commerce. The Commission also charges fees for exemptions from securities law and authorisations of certain market participants. The Government has increased the Commission's funding in recent years ($4.7 million in 2003-2004, $5.2 million in 2004-2005 and $5.9 million in 2005-2006) to enable the Commission to perform new functions which arise from the Government's legislative programme. The Government also provides a litigation fund for Court actions taken by the Commission. A copy of the appropriation for the current financial year is at Annex 2.
The Commission provides quarterly reports and financial statements to the Ministry of Economic Development as well as presenting its Annual Report to the Minister for tabling in Parliament.
Vision, purpose and objectives
The Commission's vision is "Investors can have confidence in New Zealand's securities markets and the markets increasingly attract investment from New Zealand and overseas".
The Commission's purpose is to achieve the vision by promoting:
Objectives over the next four years are planned in seven key areas:
Relationships - the Government and regulatory environment
Registrar of Companies and National Enforcement Unit
The Commission is the principal regulator of New Zealand's securities markets. Some regulatory and enforcement functions are also carried out by other agencies. The Registrar of Companies is responsible under the Securities Act for the vetting and registration of prospectuses. The Registrar also conducts investigative work for the Commission, by conducting inspections under the Securities Act at the request of the Commission.
The Securities Act contains a number of criminal offences. However, the Commission does not have authority to bring criminal proceedings. Where Commission investigations lead to criminal proceedings these prosecutions are brought by the National Enforcement Unit of the Ministry of Economic Development, generally on referral from the Registrar of Companies.
Ministry of Economic Development - Business Law Unit
The Commission has a function to review the law relating to securities and to make recommendations for change to the Minister of Commerce. In practice the Commission focuses its work on recommendations for changes to the law that arise from our enforcement and other practical experience of the securities markets.
The Commission also works closely with Ministry officials on securities law reform projects, providing comment on draft and final discussion papers, regulations, and Bills. The Commission is generally consulted on cabinet papers affecting securities law.
NZX
New Zealand Exchange Limited (NZX), was formerly called the New Zealand Stock Exchange (NZSE). The NZSE demutualised in 2003, forming a limited liability company, NZX. NZX is now a listed company, its shares trading on the New Zealand Stock Market (NZSX) operated by NZX.
Under the Securities Markets Act 1988 New Zealand has a co-regulatory regime for listed securities markets. The legislation includes facility for the registration of securities exchanges and futures exchanges. NZX is currently the only registered securities exchange. The Government approves NZX's conduct rules for listed companies and market participants. The Commission advises the Minister on these rules and on any amendments, which can be disallowed by the Government.
As a registered exchange NZX must operate its markets in accordance with its conduct rules. It is required to provide certain information to the Commission, for instance where it considers there has been a serious breach of securities law or the conduct rules. NZX is also required to cooperate with the Commission in the performance of its functions, and to consult with the Commission before giving waivers from or rulings on any continuous disclosure rules.
For its part the Commission has, under the law, an oversight role of NZX and any other registered exchange. In certain circumstances the Commission can give compulsory directions to a registered exchange requiring it to suspend trading in particular securities, or to take some other action relating to trading in securities. The IMF Financial Sector Assessment Program (FSAP) review in 2003 recommended that the Commission develop a formal oversight plan for NZX. The Government's response to the review noted that the Commission will develop such a plan. The Commission expects to implement this during the 2005-2006 financial year.
To facilitate the co-regulatory relationship the Commission and NZX have signed a memorandum of understanding, which addresses thresholds, procedures, and processes for:
Takeovers Panel
The Takeovers Panel is a separate body from the Securities Commission. However, one of the Commission's functions is to provide administrative and support services to the Panel. The Panel purchases staff resources and facilities from the Commission under an agreement reviewed annually.
Other Agencies
The Commission works with other public and regulatory agencies. These include the Reserve Bank, Commerce Commission, Serious Fraud Office, Office of the Auditor General, Retirement Commission, Ministry of Consumer Affairs, Advertising Standards Authority, Banking Ombudsman, Law Commission, the Government Actuary and Enterprise New Zealand Trust.
The Commission, along with the Registrar of Companies, Serious Fraud Office, Reserve Bank, Government Actuary, Takeovers Panel, and Commerce Commission, meet several times a year as the Financial Regulators Coordination Group to discuss current issues and to share information. A multilateral MOU has been developed to assist information sharing among members of the group.
Industry groups
The Commission maintains links and consults with industry groups, including the Investment Savings and Insurance Association, Institute of Chartered Accountants of New Zealand, Institute of Directors, Trustee Corporations Association, Financial Planners and Insurance Advisers Association, Financial Services Federation, Bankers Association, New Zealand Law Society, New Zealand Shareholders Association, and Listed Companies Association.
Market participants
The Commission's regulatory work ultimately concerns and affects three groups of market participants - investors, intermediaries, and issuers of securities. The Commission deals with all three groups in the exercise of its functions, including enforcement work, processing exemption or authorisation applications, and promoting public understanding through its communications and educational programmes.
International Organisation of Securities Commissions (IOSCO)
IOSCO is a global forum for securities regulators and is recognised as the international standard setter for securities regulation. Some 175 regulatory and self-regulatory agencies, regulating over 90% of securities markets world wide are members of IOSCO. IOSCO's General Secretariat, based in Madrid, services IOSCO's Executive Committee, Presidents Committee (i.e. the annual meeting of all members), Technical Committee, Emerging Markets Committee, and four regional committees. IOSCO works in five areas:
Among IOSCO's important initiatives are its Objectives and Principles for Securities Regulation (IOSCO Principles) and a Multilateral Memorandum of Understanding (IOSCO MOU). These aim to raise the standards of regulation of securities markets and to enable the exchange of enforcement-based information between regulators. After intense scrutiny the Commission was in 2004 accepted as a signatory to the IOSCO multilateral MOU which enables cooperation between signatories to combat international fraud and to effectively enforce securities law. This has raised New Zealand's reputation internationally as a good international corporate citizen. Being part of the MOU has already increased the number and quality of cross border interactions, especially with the United States.
New Zealand chairs the governing body of IOSCO
The Commission has been an active member of IOSCO, and of its Asia Pacific Regional Committee, for many years. Chairman Jane Diplock was elected chair of IOSCO's Executive Committee, the governing body of the organisation, in May 2004 for a two year term. This is a prestigious appointment for New Zealand and followed the Commission's election two years previously as one of nine elected members of the Executive Committee. The Commission hosted a meeting of the Asia Pacific Regional Committee in February 2004, the first time an IOSCO meeting had been held in this country, and is to host meetings of the Executive, Technical and Emerging Markets Committees in Wellington in February 2006.
New Zealand has benefited from the Commission's involvement with IOSCO in the development of domestic securities policy and legislation. The Commission's acceptance as a signatory to the IOSCO MOU has increased the number of jurisdictions with which the Commission can cooperate to enforce securities law.
Australian Securities and Investments Commission
The Commission has a close relationship with the Australian Securities and Investments Commission (ASIC) including a bilateral agreement to exchange enforcement-related information. Prior to her appointment Chairman Jane Diplock was the New South Wales Regional Commissioner and National Director, Infrastructure and Planning at ASIC. The two commissions hold joint meetings twice a year on matters of mutual interest including the proposed trans-Tasman mutual recognition regime for offers of securities and interests in managed investment schemes. This will allow a New Zealand issuer to extend an offer being made in New Zealand to investors in Australia without complying with most of the substantive requirements of Australian law - and vice versa. The aim is to remove unnecessary regulatory barriers to trans-Tasman securities offerings, and thereby:
Other overseas securities regulators
As well as being a signatory to the IOSCO MOU the Commission has bilateral MOUs with securities regulators in Australia, China, Hong Kong, Indonesia, Malaysia, Papua New Guinea, Sri Lanka, Taiwan and the United States of America. It has just signed a MOU with the Israel Securities Authority. These MOU's facilitate the exchange of information between the Commission and its counterparts in these countries.
Other overseas bodies
Chairman Jane Diplock is a member of the Trans-Tasman Leadership Forum. From time to time the Commission is in contact with other international bodies affecting securities markets including the Financial Stability Forum, OECD, International Accounting Standards Board, and IMF and World Bank relating to the Financial Sector Assessment Program (FSAP). The Commission was deeply involved in the securities regulation aspects of the FSAP of New Zealand in November 2003. The FSAP report identified some areas to be addressed which are noted on page 17.
Primary and secondary markets
It is convenient to divide securities markets, from a regulatory perspective, into primary and secondary markets. The primary market for securities involves the offer and issue by companies and other issuers of their own securities. This includes public and non-public offerings of shares, debt securities, units in unit trusts, superannuation and life insurance products, and interests in syndicates and other participatory schemes. The secondary market is the subsequent trading of securities, whether on regulated exchanges or elsewhere.
The primary market is regulated under the Securities Act. This Act applies to any offer of securities to the public for subscription. Non-public offers of securities are not subject to this law. The regulatory regime is largely disclosure-based. It requires compulsory disclosure of all material matters about the issuer and the securities in a prospectus registered with the Registrar of Companies. An investment statement is also required. This contains information about the offer in plain English in a prescribed question and answer format. The investment statement aims to assist prudent but non-expert investors to decide whether or not to invest and enable them to compare different investment offers. The investment statement must be given to prospective investors before they invest.
The secondary market is regulated under the Securities Markets Act 1988. For the most part this legislation applies only to securities traded on registered exchanges. The Securities Markets Act currently includes rules about:
The Securities Legislation Bill, which was before Parliament when the House rose for the election campaign, amends this legislation in a number of ways which are noted below.
Intermediaries
Intermediaries, including investment advisers, sharebrokers, financial planners, and other promoters or marketers of financial products, are involved in both the primary and secondary markets. At present New Zealand has a disclosure-based regulatory regime for investment advisers and brokers in the Investment Advisers (Disclosure) Act 1996. Proposed amendments to this disclosure regime, aimed at improving disclosure and enforcement, are contained in the Securities Legislation Bill.
Investment advisers and brokers are not required to be licensed under New Zealand law, with the exception of sharebrokers, who must be licensed by a District Court under the Sharebrokers Act 1908; and futures dealers, who must be authorised by the Commission under the Securities Markets Act 1988. The Financial Intermediaries Task Force, set up by the Minister of Commerce in 2004 considered the possible regulation of financial intermediaries, sought public input on the issue, and reported its recommendations on 29 July 2005.
The listed securities markets
NZX, the only registered securities exchange, operates 3 securities markets:
Futures Markets
There are 2 authorised futures exchanges, the New Zealand Futures and Options Exchange (NZFOE) and the Sydney Futures Exchange (SFE). NZFOE is a wholly owned subsidiary of SFE. Since May 2004 all trading of NZFOE products is conducted by the SFE in Sydney.
NZX derivative products can be traded on an SFE market, the NZFOX. At present two products are available. The FoX15 futures contract is an index futures contract based on the NZSX15 index. NZSX share options were recently designated by the Commission as futures contracts under the Securities Markets Act.
Futures dealers must be authorised by the Commission. Participants of SFE or who are approved by NZX as NZFOX Participants can deal in futures contracts under class authorisations granted by the Commission in 2004. Other dealers must be individually authorised. The New Zealand futures market is mainly a wholesale market. There is an emerging market for foreign exchange trading, including foreign exchange futures trading, among retail investors, particularly in parts of Auckland.
Unregistered securities markets
The Securities Markets Act applies to trading on registered securities exchanges. No one can call their securities market a "stock exchange" or "securities exchange", or state or imply that a market is regulated under New Zealand law unless that person is registered as an exchange.
If these prohibited actions are avoided a securities market may operate without being registered under the Act. However, the Minister of Commerce has the power to declare that any body corporate is prevented from operating a market without being registered. The Minister can do that if satisfied that the result of not doing this is likely to be detrimental to:
The previous Minister of Commerce, Hon Pete Hodgson, earlier this year considered whether Unlisted, an unregistered trading platform, should be required to register and decided against this at present.
Collective Investment Schemes
Interests in collective investment schemes - including interests in unit trusts, superannuation, and life insurance - are securities under New Zealand law. Primary offers of these products to the public are regulated under the Securities Act. In addition, specific legislation for the formation and governance of some schemes is found in the Unit Trusts Act 1960, the Life Insurance Act 1908, the Trustee Companies Act 1967 (in respect of Group Investment Schemes), and the Superannuation Schemes Act 1989. These Acts all include restrictions on the operation of such schemes, but there is no licensing of funds managers.
A small number of unit trusts have securities listed on the NZSX market.
Other participatory schemes can offer securities to the public under the Securities Act, and must appoint a statutory supervisor, which must be a statutory trustee corporation or a person approved for the purpose by the Commission. These include forestry and agricultural syndicates, limited partnerships, and some property interests (such as some interests in retirement villages, until the Retirement Villages Act comes into force). The Securities Act only regulates the offer of securities by these schemes, and does not prescribe the legal form or organisation of the schemes.
Unlisted debt - finance companies, banks, corporate bonds
The Reserve Bank is the main regulator of registered banks under the Reserve Bank of New Zealand Act 1989. Registered banks are also subject to the Securities Act when they offer securities (including bank accounts) to the public. Registered banks are exempt from the prospectus and trustee requirements of securities law. Investment statements are not required for any call debt securities.
There is a growing market for other debt securities, particularly term deposits and debentures offered by finance companies.
Issuers who offer debt securities to the public must appoint a trustee, which has to be a statutory trustee corporation or a person approved by the Commission to act as a trustee for debt securities. Typically debt security trust deeds include lending ratios and other prudential controls. Other than the trustees there is no prudential regulation of non-bank debt issuers.
Other issuers of debt, such as building societies and credit unions, are also subject to the Securities Act, and also to their own industry-specific legislation.
Scams
Investment scams take large sums away from New Zealand's securities markets. Much Commission resource is taken up by enforcement relating to scams and, more recently, education work about investment scams. Of particular concern are affinity fraud schemes, which are promoted among religious and social groups, and which rely on the trust within the group for their success. These are often Ponzi schemes or "prime bank" schemes, promising highly unlikely returns with little or no risk.
Overseas brokers who cold call New Zealanders with enticing offers of shares in little known United States companies are of concern. Sometimes these companies do not exist, and the offer is entirely fraudulent. In other cases the shares are sold to New Zealanders, mostly small business owners, at inflated prices which subsequently collapse. "Follow up" calls about worthless shares purchased several years ago are occurring. These are part of the same scam, but many people are duped a second time. In all cases it is impossible for the New Zealand investor to get their money back. The Commission carried out an education campaign earlier this year targeting small businesses to help people avoid these share scams. A media release Don't be a Gullible Kiwi - a share scam and how it works, which describes the scams perpetrated by overseas brokers, is at Annex 3. Recently the scam has taken a new twist with the fraudster using the names and details of genuine companies in the USA and other places. We are repeating our Don't be sucked in by share scams media campaign during November.
The Commission works with the Serious Fraud Office to increase awareness of investment fraud.
Enforcement
Tranz Rail insider trading case
The Commission filed its first case for insider trading, under new law which allows the Commission to bring court action in the public interest, on 13 October 2004 in the Wellington High Court (media statement at Annex 4). Subsequently two defendants, Richwhite and Midavia, filed a statement of defence and a request for further and better particulars. In December 2004 one defendant, Michael Beard, the former managing director and chief executive officer of Tranz Rail, settled with the Securities Commission. This was a good outcome. Subsequently a settlement was reached with Mark Bloomer former CFO of Tranz Rail. (News releases on these are at Annex 5.) Two other overseas defendants are still challenging jurisdiction. The High Court decision on jurisdiction and other procedural questions involving Richwhite and Midavia's case are awaiting appeal.
Provenco insider trading case
An insider trading case was filed against Provenco Group Limited, formerly Advantage Group Limited, and three of its directors on 17 December 2004. This case was recently settled when the defendants agreed to pay the following sums: Provenco $300,000, Mr Bradley $150,000, Mr Gordon $130,000 and Mr Wolfenden $42,000. These sums each represent an amount for compensation, a component for penalties, and a contribution to the Commission's costs. The Commission is pleased with this settlement, although the defendants contend that they had good defences to the claims made against them. It is a good outcome for investors and for the markets. It demonstrates that effective action can be taken against suspected insider trading. Effective enforcement of securities law is important for investor confidence and for the integrity of the markets more generally. There is always a litigation risk in insider trading cases and the Provenco case is a good result, particularly as it was settled in a timely manner. (News releases Annex 6)
Access Brokerage
The Commission is conducting an inquiry into events surrounding the collapse of Access Brokerage Limited last year. The focus is on the regulatory and market issues arising from this situation, rather than on specific events at Access Brokerage.
Under the Securities Markets Act 1988 NZX is the frontline regulator, responsible for operating its markets in accordance with its conduct rules. NZX is investigating whether, as a result of the collapse of Access Brokerage, there have been any breaches of its conduct rules and if so, will take action in respect of those breaches. NZX is also reviewing client funds accounting at all NZX Firms and intends to review its conduct rules about client funds accounting.
The Commission is the statutory regulator with oversight of securities markets and registered exchanges. This includes oversight of the performance by NZX of its regulatory functions. The Commission's inquiry is essential to demonstrate an effective co-regulatory system. This oversight, together with the steps being taken by NZX, will provide the public with confidence in the actions being undertaken to guard against failures like Access Brokerage in the future.
NZX has filed a Statement of Case with NZX Discipline, the independent body set up to consider alleged breaches of NZX Discipline Rules. NZX alleges breaches of its rules by Access Brokerage and its Principal, Mr Peter Marshall. This matter is on-going, The SFO has filed criminal charges against Mr Marshall, alleging 13 counts of false accounts and 2 counts of making a false statement as an officer of Access Brokerage.
In September 2005 the BNZ and Ferrier Hodgson, the liquidator of Access Brokerage, commenced civil proceedings against NZX, seeking recovery of money paid by BNZ to Access clients following the collapse of the broking firm. The NZX denies liability. These cases are continuing.
Finance companies
In 2004 the Commission expressed concern about the quality of disclosure in the offer documents of many finance companies. It published a discussion paper on how offer documents could provide more useful and complete information to help investors gauge the quality and risk of finance companies securities. In April 2005 the Commission published a report setting out its expectations for disclosure by finance companies under the Securities Act and Regulations. This took into account comments received on the discussion paper. The Commission is reviewing a sample of finance companies' disclosure documents this year as part of its market monitoring work. Any breaches of the law will be raised with the company concerned and the Commission will take enforcement action when appropriate.
BT - litigation
Early in 2003 the Commission was advised that a significant Australian Issuer, BT Funds Management, had for some time been in breach of an exemption notice under which it was offering securities to a large number of New Zealand investors. The consequence of the breaches, which involved failures to file certain documents with the Registrar of Companies, was that allotments of the securities were void under the Securities Act, and BT was obliged to return investors' money, plus interest of 10% per annum.
The Commission began an inquiry which ultimately showed that around 11 other overseas issuers were in a similar position. Work undertaken in the course of this inquiry also showed that relief under the Illegal Contracts Act was probably not available to these issuers.
The Securities Act was amended in April 2004 to provide a streamlined mechanism for these issuers to apply to the High Court for relief orders, validating allotments of securities that had been issued in breach of the exemption notices. BT, now owned by Westpac, commenced proceedings under this legislation in September 2004. To date the High Court has made mandatory relief orders under the law. These apply only to investments where the investors did not object to orders being made. BT is likely to apply to the Court in the near future for relief orders in respect of the small number of investors who did object to orders being made. Under the law the Commission is served with all papers in these proceedings, and has a right to appear. The litigation has generated little publicity to date, but this may change once orders are sought in respect of the objectors' investments.
Similar cases have been commenced by a few other Australian issuers, though involving fewer investors. These are continuing.
Securities Legislation Bill
This Bill was introduced in November 2004, and has been through the Commerce Select Committee process and was before the House prior to the election. The Bill amends the Securities Markets Act, the Securities Act, and the Takeovers Act. In particular the Bill includes:
Financial Intermediaries Task Force
This task force was established by the Minister of Commerce in 2004 to consider possible regulation of financial intermediaries. It published its report in July 2005. The Commission welcomed the report and is keen to see progress with reform in this area.
Securities Act Review
The final stage of the Government's announced four-stage securities law reform programme is underway. The Commission has been participating in officials' working groups and industry advisory groups established for this project.
Securities Regulations
The Commission and the Ministry of Economic Development have been reviewing the Securities Regulations 1983. These contain the detailed rules for offer documents and prospectuses. A main aim of the review was to simplify compliance by generally aligning the financial reporting rules for prospectuses with those of the Financial Reporting Act. This work has been delayed because of a legal impediment to these regulations incorporating by reference financial reporting standards. An amendment to the Securities Act to fix this is included in the Securities Legislation Bill.
Regulation of futures dealers - NZX/SFE/non exchange
When NZX announced the development of its NZFOX futures market in September 2003 it also announced that it sought to take frontline responsibility for the regulation of all futures dealers in New Zealand. This was welcomed by the Commission.
However, late in 2004 the Commission was advised that NZX has decided not to undertake this responsibility in respect of certain classes of dealers. This excluded group is likely to include those who are predominantly foreign exchange futures dealers, among others. This is a growing market in New Zealand. The Commission is currently in discussion with NZX to better define the scope of NZX's intended regulatory role in this area.
It is likely that the decision by NZX not to regulate parts of the futures industry will increase the resource demands on the Commission in this area.
Much of the difficulty in this area arises from uncertainty among market participants about the precise scope of New Zealand's futures dealing regime, in particular as it affects foreign currency products. The Commission intends to publish a discussion paper very shortly, which will propose that the Commission declare certain products to be futures contracts. This should ensure more consistent regulatory treatment for similar products and should help to reduce uncertainty about the application of the futures dealing law.
International
International Accounting Standards
New Zealand intends to adopt international accounting standards by 2007, with an option for companies to "early adopt" from 2005. There are a number of transitional questions arising for issuers of securities. The Commission is addressing these through exemptions already granted and through practice notes setting out the Commission's expectations regarding disclosure of certain financial information during the transition period to international accounting standards.
FSAP recommendations for New Zealand
In late 2003 an IMF team undertook a Financial Sector Assessment Program review of New Zealand. The detailed assessment of New Zealand's observance with the IOSCO Objectives and Principles of Securities Regulations was published in January 2005. The IMF has recommended a number of specific actions. These recommendations are in Annex 7. Some of these are being implemented in the Securities Legislation Bill.
Other recommendations include:
New Zealand's response is that the recommendations concerning collective investment schemes and market intermediaries will be considered in the Government's review of the Securities Act. The Commission is working to implement the recommendation regarding a formal oversight plan for NZX. The Commission published a Code of Ethics in 2004, and is developing risk management and control policies.
IOSCO
The Commission is of the opinion that IOSCO's work in promoting and helping jurisdictions to adopt the IOSCO Principles of Securities Regulations and to join the IOSCO MOU is vital in improving regulation of securities markets worldwide. The Commission will continue to work with IOSCO at both the Executive and Regional Committee levels.
The interests of investors are at the heart of much of the Commission's work. Enforcement and surveillance of the primary and secondary markets contributes to markets with integrity where investors have all the information they need to make informed investment decisions. Exemptions give investors a wider range of investment choices and reduce costs for issuers. Other work by the Commission is specifically aimed at investors.
Public warnings about dubious offers and scams
An example is the 22 December 2004 release about Geared Equities (Annex 8). Warnings are issued to the news media and published on the website www.seccom.govt.nz to draw public attention to offers of securities that do not comply with the law. Cold calling overseas boiler rooms have taken many millions of dollars from New Zealanders with offers of worthless shares. The Commission's recent campaign to alert small businesses to this scam raised public awareness through the news media, distribution of brochures, and a dedicated website www.sharescams.org.nz. The Commission is repeating this campaign in November and continues to warn people not to do business with people from overseas who are known to them only by telephone.
Education projects
The Commission's education work is divided into projects which aim "to help New Zealanders make better investment decisions". Last year a project warning religious and ethnic groups about affinity fraud was completed. The case in Rotorua of the Papple couple who defrauded people in the Mormon church was an example of this type of fraud. The Commission has an ongoing project to reach young people with information about investing by sponsoring work by Enterprise New Zealand Trust. In October and November 2004 the Commission successfully carried out a Protect Yourself From Fraud campaign in the western Bay of Plenty jointly with the Serious Fraud Office. We expect to repeat this campaign in another part of the country in 2006. The campaigns to alert small businesses to the activities of telephone share scams have been referred to above. We also intend to undertake an educational project for financial intermediaries when the Securities Legislation Bill is passed.
Annexes
Annex 1 - Members of the Commission
Members of the Commission
Jane Diplock AO BA (Hons), LL.B, DipEd (Sydney), Dip Int Law (ANU).
Chairman of the Commission since September 2001.
Professional:
Barrister
and Solicitor of the ACT Supreme Court and High Court of Australia, Barrister of
the New South Wales Supreme Court; Fellow
of the Institute of Public
Administration of Australia; Chevening Fellow at London School of Economics;
Chairman of the Executive
Committee of IOSCO; Fellow of the New Zealand
Institute of Management.
Colin AN Beyer LL.B, FIOD.
Consultant to Simpson Grierson,
Wellington.
Professional:
Solicitor, Wellington.
Mai Chen LL.B (Hons) (Otago), LL.M (Harvard), FNZIM.
Foundation
Partner of Chen Palmer & Partners, Wellington, Barristers and Solicitors,
Public Law Specialists.
Professional:
Specialist in government regulation
of business, administrative and constitutional law, public policy and
legislation. Formerly on
the Advisory Board of AMP Life Limited (NZ) and Senior
Law Lecturer at Victoria University of Wellington.
Annabel M Cotton BMS (Accounting and Finance), ACA, CSAP.
Business
Consultant, Auckland.
Professional:
Consultant to companies listed in New
Zealand and overseas.
Directorships:
Genesis Power Limited; Kingfish
Limited and its subsidiaries; Merlin Consulting Limited; and director of a
number of private companies.
Keitha Dunstan PhD (QLD), M.Bus (QUT), Grad Dip Mgt (UCQ), B.Com
(QLD).
Research Professor, School of Accounting and Commercial Law, Victoria
University of Wellington.
Professional:
Founding Director of the Centre
for Accounting, Governance and Taxation Research at Victoria University of
Wellington; New Zealand
President Accounting and Finance Association of
Australia and New Zealand.
David Jackson M.Com (Hons), FCA. Company Director,
Auckland.
Professional:
Chartered Accountant; Member of the Executive
Board of the Institute of Chartered Accountants of New Zealand; Previously
Senior Audit
Partner with Ernst & Young.
Directorships:
Pumpkin Patch
Limited, CanWest MediaWorks (NZ) Limited and The New Zealand Refining Company
Limited.
Lloyd AJ Kavanagh LL.B.
Associate Director - Mergers &
Acquisitions, Fonterra Co-operative Group Limited.
Professional:
Barrister
and Solicitor, Auckland.
Directorship:
Soprole S.A.
Joanna MG Perry MA (Cantab), FCA (ICANZ), FCA (ICAEW).
Chartered
Accountant, Auckland.
Professional:
Partner of KPMG; Chairman of the
Financial Reporting Standards Board of the Institute of Chartered Accountants of
New Zealand; Member
of the Australian Accounting Standards Board.
Cathy A Quinn LL.B.
Solicitor,
Auckland.
Professional:
Partner of Minter Ellison Rudd Watts specialising
in corporate and securities law. Joint author Morison's Company and Securities
Law.
Neville O Todd B.Com (Otago)
Director, Investment Management
Company, Wellington.
Professional:
Past Member of the New Zealand Stock
Exchange.
Directorship:
Milford Asset Management Limited.
Annex 2 - Appropriations
The Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2006, Vote Commerce, Volume 1, page 195).
This appropriation covers the cost of purchasing of the following functions by the Securities Commission :
Annex 3 - Media release on share scams
Media Release
10 January 2005
DON'T BE A GULLIBLE KIWI - a share scam & how it works
A telephone call out of the blue and you're getting the low down on an American company poised to make a breakthrough with new technology or a medical discovery.
You're told that the company's shares are listed on the Nasdaq stock exchange but the company is little known and the shares are very cheap. If you buy now, just before the exciting breakthrough is announced, you will make a huge return.
The caller is convincing, pleasant, and persuasive. "Calls like this have resulted in New Zealanders losing millions of dollars overseas in the last few years," says Securities Commission Director of Enforcement, Norman Miller.
Overseas broker calls are an evolving scam. "These fraudsters regularly change their tactics, their names, and the countries they operate from - to avoid detection and to keep the money rolling in," Norman Miller says.
The first calls to New Zealanders were in the late 1990s. When a person sent money to the "broker" they either did not receive share certificates or, if they did, the shares turned out to be worthless. Often the broking firm did not buy shares at all, instead the money was quickly moved to other countries, to the people behind the scam.
Sometimes the fraudsters set up worthless companies in which they also held shares. Then by selling a very large number of shares to unsuspecting New Zealanders and Australians over the phone, the share price went up. The "brokers" then cashed in their own shares at the higher price, and laughed all the way to the bank.
The share price, of course, then crashed leaving Kiwi investors with worthless shares. This is an old scam known, elegantly, as "pump and dump".
The first calls to New Zealanders were mostly from Thailand, the Philippines, and Indonesia. The callers spoke English well, often had English names, and were extremely convincing. They could be very difficult to shake off.
They telephoned from "boiler rooms" where many callers operated for long hours. They often targeted people with small businesses, no doubt aware of the Kiwi liking for a bit of a punt and the idea of doing it yourself.
The pleasant approach could change dramatically if a person who bought shares wanted to sell their shares or pull out of the deal. The Securities Commission even received some reports of the "broker" firms threatening people with legal action.
Usually, however, when the person who bought the shares became disillusioned and tried to get documents or their money back, the "brokers" became impossible to contact.
If the victim did get them on the phone they were told that there was now no market for the shares, or that the broking firm had been taken over by another firm, or that it was relocating. Whatever the excuse, the person had no chance of getting their money back.
What did the Commission do?
"Where victims could tell us the names
and contact details for the "brokers" we wrote to them about their non
compliance with New
Zealand law," Norman Miller says. "We also contacted our
counterparts in the other country asking if the firm was registered to conduct
securities business."
Invariably there was no reply from the "broker", and a "not known" reply from the securities regulator in that country.
In what turned out to be a world first the Commission published the names of these "brokers" on its website (www.seccom.govt.nz) warning people not to do business with them. Soon Australia, Hong Kong, and regulators from other countries were publishing similar lists. The lists have hundreds of names.
The Commission also issued many other warnings to the public about cold callers.
Asian regulators clamp down
Liaison between the securities
regulators lead to actions in several countries against the boiler rooms. In
2001-2002 in particular
the authorities in Thailand and the Philippines clamped
down on these operators.
Publicity about this in New Zealand resulted in hundreds of calls to the Securities Commission revealing that people had sent many millions of dollars to these scams.
For a while it seemed that overseas broker activities were waning.
The first evolution - bogus legal firms
However, before long there
was a new twist. People who had bought worthless shares were contacted by phone
again, this time by a bogus
"lawyer" who offered to take action to help them
recover their money.
These phone calls were backed with faxed documents or referrals to websites which looked impressive and genuine.
Of course, more money had to be sent first. This was a continuation of the original scam. However, many people, anxious to recover their money were duped a second time.
The follow up scam
When some time has passed since people lost
their first "investment" to an overseas "broker", the fraudsters decide to try
the victim
again.
This time it is a call from an apparently different broker who knows about the shares you hold. He has a client who wants to buy your worthless shares, possibly as a tax write off, and will trade them for much more valuable shares. Once again, of course, money must be sent first as a "clearance fee" or "transfer fee".
These calls are mostly from the United States and the Securities Commission currently receives several reports of them from the public each week.
The caller refers the victim to a "government agency" which they claim has approved or licensed them as brokers. The victim is given a telephone number to ring or a website to visit as verification of this. Chances are, of course, that the call to verify the broker is to the person at the next telephone in the same room.
The websites they refer people to look genuine, sometimes with web pages copied from the real regulators' websites. Investigations often show that the websites have only been operating for a few weeks or months.
The authorities believe that there are probably only a few people operating these scams. They move often, change their names, and set up new websites and call operations.
They continue to get rich at the expense of people who send money overseas on the basis of phone calls.
Yet another variation
Recently a new version of the share scam has
emerged using private answering machines.
The target person finds an answerphone message, apparently a wrong number call, which gives hot share tips in little known United States companies. The messages are compelling.
This scam is reported as sweeping the United States where the fraudsters employ people to leave the answerphone messages. Many victims, tempted by this "inside" information, buy the shares, the price goes up, the fraudster cashes in, and the share price collapses. The pump and dump scam all over again.
Again the fraudsters have adapted the scam to new technology and conditions and continue to cash in.
How to avoid being conned by phone
Don't be a gullible Kiwi in 2005.
* * * * *
Annex 4 - Media release on Tranz Rail Filing
News Release
13 October 2004
SECURITIES COMMISSION FILES INSIDER TRADING PROCEEDINGS IN TRANZ RAIL CASE
The Securities Commission filed insider trading proceedings relating to share trading in Tranz Rail Holdings Limited in the High Court in Wellington today. Tranz Rail is now called Toll NZ Limited.
The defendants named in the proceedings are:
This is the first time that the Commission has used its powers to take court action for insider trading.
The Commission's inquiry focused on sales of shares in the first half of 2002, before the share price of the company began to deteriorate from about the middle of 2002. At the beginning of 2002 the share price was $4.00. By 16 April 2003 it had fallen to its lowest level ever ($0.30).
The inquiry has involved obtaining documents both in New Zealand and overseas. It has involved a large number of interviews and the receipt of formal oral evidence from many witnesses.
The basis for the proceedings is that the parties who sold their Tranz Rail shares had information about the company which was not publicly available and which would have affected materially, or would have been likely to affect materially, the price of the shares if it had been publicly available.
An additional action for tipping is raised against Carl Ferenbach (representing Berkshire Fund III A Limited Partnership) and David Richwhite (representing Midavia/Pacific Rail, an investment vehicle controlled by Fay Richwhite interests).
The proceedings seek compensation for the losses avoided by the traders. The proceedings also seek to have pecuniary penalties imposed.
The inside information at issue relates to:
The proceedings are brought under section 18A of the Securities Markets Act 1988. This enables the Commission to exercise a public issuer's right of action against an insider (in accordance with section 18B) if it considers that it is in the public interest to do so.
The Commission has decided that it is in the public interest to do so in the present case.
The Commission has actively investigated the matter since February 2003, when the Market Surveillance Panel released its report on Tranz Rail.
... ends ...
Contact: Catherine Chapman ph 04 471 7659
Annex 5 - Media releases Tranz Rail settlements
News Release
23 December 2004
TRANZ RAIL HOLDINGS LIMITED
The Securities Commission has reached a settlement of the insider trading proceeding brought against Mr Beard, the former managing director and chief executive officer of Tranz Rail.
In August 2001, the Board of Tranz Rail made a grant of 70,496 shares of stock in lieu of a cash bonus to Mr Beard. At that time, the Board made provision for, and subsequently gave specific approval for, the sale of a portion of these shares to pay for the tax liability created by the grant. Accordingly, in March 2002, Mr Beard sold 35,248 shares to fund the payment of provisional taxes to the New Zealand Inland Revenue Department. At that time, Mr Beard held 270,496 shares, of which 200,000 were purchased when he joined the company in May 2000.
Mr Beard believes that he sought and obtained the consent of the Board for the sale of the shares in question. In seeking that consent, Mr Beard retrospectively submitted the required documentation in which he indicated at that time that he was or may have been in possession of inside information. He did not sell any other shares and, in fact, continued to accumulate shares in the company until the Toll Holdings takeover of Tranz Rail in October 2003. At that time he sold all his holdings, a total of 513,133 ordinary shares, 790,000 options and 1,200,000 redeemable preference shares, incurring a significant loss.
Mr Beard has agreed to pay the full amount of the Commission's compensation claim of $55,691.84 and $100,000 of the Commission's claim for penalty and costs, a total of $155,691.84.
Mr Beard has agreed to make this payment without any admission of liability. He acknowledged at that time that he was or may have been in possession of inside information when he traded the shares in question as a result of his position as an officer and director of Tranz Rail. He also acknowledges that, as a result, the Commission had a case against him under the Securities Markets Act 1988. He considers, however, that he had a defence to that case.
Mr Beard has also agreed to assist the Commission with its case against the remaining defendants in the proceeding.
The settlement has been approved by the High Court. No judgment has been entered against Mr Beard.
* * * * *
Contact: Catherine Chapman Phone 04 471 7659 Mobile 027 2969 130
News Release
20 May 2005
Tranz Rail Holdings Limited
The Securities Commission has reached a settlement of the claims of insider trading which it brought against a former CFO of Tranz Rail, Mr Mark Bloomer.
In December 2000 Mr Bloomer bought shares in Tranz Rail pursuant to the Company's Executive Share Plan. This Plan provided that he would be allocated one redeemable share for each ordinary share that he bought. He borrowed about $1.5m to buy a substantial parcel of shares in the Company, in anticipation that the loan would be serviced by the dividends which would be paid on the shares. In August 2001 Tranz Rail decided to suspend the payment of dividends. As a result of the financial pressure caused by the suspension of dividends Mr Bloomer was unable to service the interest which was payable on this and other loans.
Mr Bloomer applied to the Company, in accordance with its Securities Act approved procedure, to sell shares between February and March 2002. Those sales were all approved in advance by the Company, and completed within authorised trading windows. The proceeds of sale were used, as he had stated would be the case, to reduce his loans. When Mr Bloomer ceased selling in March, he retained 646,654 shares which represented more than half the shares that he was able to sell. The retained shares would have realised a profit of about $600,000 if they had been sold at that time. He also retained 800,000 other shares which had not at that time vested to him.
Shortly after he left the Company he sold a parcel of 23,937 shares which vested in him on the termination of his employment. As he was not an employee at the time of the sale he was not entitled to obtain formal approval from the Company pursuant to its approved procedure. He nevertheless sought advice from the Company as to the sale of the shares and he followed the advice which he was given.
In the months that have passed since the Commission made its allegations, Mr Bloomer has provided extensive information to support his reasons for needing to sell shares.
He acknowledged at the time of lodging his application to sell his shares, that he was or may have been in possession of inside information as a result of his position as an officer of Tranz Rail, but he contended that his decision to sell was not related to this. He now acknowledges that the Commission had a case against him in respect of the final sale, under the Securities Markets Act 1988 since that sale was not made under the protection of the Company's approved procedure. Notwithstanding this, he considers that he has a defence to that case.
In light of the information provided to it by Mr Bloomer relating to his share trading made under the approved procedure, the Commission recognises the risk that Mr Bloomer's defence to that part of its claim against him might be successful.
Mr Bloomer has agreed to pay the Commission the sum of $156,000. That sum represents the maximum sum recoverable by the Commission in terms of compensatory damages and pecuniary penalties, in relation to the share sale that was not approved under the approved procedure. It also includes a contribution to the Commission's costs. The Commission has received a statutory declaration from Mr Bloomer in which he has disclosed his assets and liabilities.
Mr Bloomer has agreed to make this payment without any admission of liability.
Mr Bloomer has agreed that if he is requested to do so by the Commission, he will provide information to the Commission and make himself available as a witness in the litigation.
The settlement has been approved by the High Court. No judgment has been entered against Mr Bloomer.
* * * * *
This media statement is part of the terms of settlement between the Securities Commission and Mr Bloomer approved by the High Court.
Annex 6 - Media releases Provenco case
News Release
17 December 2004
Securities Commission files insider trading proceedings against Provenco Group
The Securities Commission filed insider trading proceedings relating to share trading in Provenco Group Limited in the High Court in Auckland today. Provenco was known as Advantage Group Limited until March 2003.
The defendants named in the proceedings are:
Nicholas Gordon and David Wolfenden are directors of Provenco, and Anthony Bradley is a former director. David Wolfenden is a director of Jeda Investments Limited. The Commission's claim relates to three phases of trading in Provenco shares:
At the times of trading each of the defendants was an insider in Provenco and in possession of inside information that was not publicly available. The inside information related to:
The Commission claims that any or all of this inside information would, or would be likely to, have affected materially the price of Provenco shares if it, or they, had been publicly available at the time of the share trading.
The Commission's actions are against:
In each case the Commission seeks compensation and pecuniary penalties.
The action is being taken under section 18A of the Securities Markets Act 1988. This enables the Commission to exercise a public issuer's right of action against an insider (in accordance with section 18B) if it considers that it is in the public interest to do so.
The Commission has decided that it is in the public interest to bring this action.
* * * * *
News Release
3 October 2005
SECURITIES COMMISSION SETTLES INSIDER TRADING CASE AGAINST PROVENCO
The Securities Commission has reached a settlement of its proceedings alleging insider trading which it brought against Provenco Group Ltd (formerly Advantage Group Ltd), directors Mr DJ Wolfenden and Mr NP Gordon, and former director Mr AH Bradley.
Following Advantage's announcement of its half year result on 28 February 2003, Mr Wolfenden bought 100,000 shares for $18,000, Mr Gordon bought 300,000 shares for $52,800 and Mr Bradley bought 440,000 shares for $90,700.
In May 2003, Provenco (having changed its name from Advantage) conducted an on-market buy-back of 4,262,517 of its own ordinary shares, paying $1,470,000.
The Securities Commission considers that the defendants were in possession of inside information about the future earnings and business prospects when they made the share purchases. The Commission has brought proceedings under the Securities Markets Act 1988, alleging breach of the insider trading laws. The defendants contend that they have good defences to the claims made against them.
The Company and the named directors have agreed to pay the Commission the following sums: Provenco $300,000, Mr Bradley $150,000, Mr Gordon $130,000 and Mr Wolfenden $42,000. These sums represent in each case an amount for compensation, a component for penalties, and a contribution to the Commission's costs.
This media statement is part of the terms of settlement approved by the High Court. No judgment will be entered against the Company or Messrs Wolfenden, Gordon and Bradley.
. . . ends . . .
Annex 7 - FSAP Recommendations
Extract from FSAP Report
Table 3. Recommended Action Plan to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation
Principle 4
To facilitate understanding of this relatively complex regime, each statutory regulator and SRO should include on its website a common, comprehensive and easy-to understand description of the regulatory framework indicating the respective roles of each regulator and how they work together.
To enhance understanding of the new and upcoming reforms, the regulators should work with market intermediaries, public issuers and their advisers to develop bilateral industry-regulator education initiatives, such as case studies, so that regulatory staff can learn from the practical experience of these market participants and their advisers, while they in turn can gain insight into staff's interpretation of the new standards.
Principle 5
If SC and TP staff numbers increase further, the SC and TP should develop a written Code of Conduct that incorporates or cross-references the standards of behaviour staff and members are expected to meet, including standards relating to conflicts of interest and personal dealings in securities or other investments that may present a conflict. An appropriate level of monitoring (e.g. through annual attestations of compliance with the Code and, possibly, spot checks on disclosures relating to securities transactions) by a designated ethics officer, who can also serve as an information resource for staff, should also be introduced. To facilitate transparency, this Code of Conduct should be made publicly available.
Principles 7, 8, 25 and 26
The government should amend the securities legislation to include comprehensive, high level principles for regulated securities and futures exchanges. While existing legislation already includes some standards, it does not expressly establish standards relating to an exchange operator's operational capability, integrity and fitness to exercise SRO-type functions (Principle 7) and operate a fair, orderly, transparent and efficient market.
The SC should develop a formalized oversight plan for regulated exchanges providing for risk assessment criteria and periodic inspections that take into account best practices for SROs and exchanges. There should be public disclosure summarizing the objectives of the oversight plan and of the key findings of such reviews.
Securities legislation should be amended to authorize: (1) the SC to direct, or recommend to the Minister that the Minister direct, a recognized securities exchange to amend some or all of its conduct rules; and (2) authorize the Minister to make such a direction on the SC's advice. (Principles 7, 8 and 26)
NZX should adopt a broader definition of "independence" (applicable to the individuals constituting the Special Division of its disciplinary body, deciding matters involving NZX in its capacity as a listed company), or disciplinary functions in respect of NZX should be transferred to an independent body, such as the SC.
Principle 9
The reforms in the remedies and penalties Section of the Cabinet Paper, Investment Advisers, should be implemented as soon as possible.
Principle 10
The RC should devote additional resources to ensure that the National Enforcement Unit can act promptly and effectively to prosecute offences in relation to securities matters.
Principle 14 (also Principle 3)
More resources should be devoted to the review of disclosure documents, so that the appropriate regulator or regulators can implement risk-based review systems enabling them to conduct comprehensive reviews of issuers' disclosure records. This might involve exploring coordinated review processes among the RC, NZX and SC to determine whether there are further opportunities to take advantage of each regulator's expertise, reduce potential duplication of effort and/or facilitate the identification of issues that potentially require enforcement action.
NZX-listed companies should be required to notify NZX (in confidence) when they rely upon the exemption to make timely disclosure of material developments, thereby enabling NZX to spot-check appropriate reliance on the exemption and facilitating NZX's monitoring of trading to ensure that persons with superior information do not engage in insider trading.
The government should amend the Financial Reporting Act to provide for more timely disclosure of financial information by unlisted public issuers. An appropriate standard might be a four month deadline, plus a requirement to make a preliminary announcement of results within 60 days of year-end.
NZX should make Listed Companies' news releases available simultaneously to its paying subscribers and the general public.
Principle 15
The government should amend the companies' legislation to provide additional alternatives to shareholder self-help remedies.
The government should amend the securities legislation to require substantial securityholders, directors and officers to file their notices of transactions in a central electronic register, thereby ensuring that an adequate historical record of such notices can be easily accessed by the public and regulators.
Principle 16
Given the reliance placed on external auditors in New Zealand's securities regulatory system, the government should ensure that ICANZ's interpretation of audit standards is subject to oversight by an independent body acting in the public interest. NZX should amend its Listing Rules to require immediate disclosure of the resignation, removal or replacement of an external auditor.
Principles 17-20
The securities legislation should be amended to provide for: (1) the appointment of a trustee or statutory supervisor to oversee the conduct of contributory mortgage brokers (or provide for direct regulatory oversight); (2) high level minimum entry and ongoing standards concerning CIS operators' honesty and integrity, competence, financial capacity, internal controls, powers and duties; (3) general conflict of interest standards for CIS operators and their trustees or supervisors; (4) minimum standards for CIS operators to provide periodic and timely reports to trustees or statutory supervisors (or to the appropriate regulator, if directly supervised by a regulator), including a requirement to immediately report material contraventions of any regulatory requirement or requirement specified in a trust deed or similar document; (5) minimum requirements for trustees or statutory supervisors to conduct periodic inspections of CIS operators and make timely reports to the SC of any material contraventions by CIS operators of regulator requirements or requirements under the trust deed or similar document; (6) the suspension or prohibition of any CIS operator by the SC; and (7) the issuance of directions by the SC to a trustee or statutory supervisor that does not appear to be fulfilling its responsibilities and, in more serious situations where investor protection is jeopardized, to remove a trustee or statutory supervisor and replace such person with the SC's appointee.
Principles 21-24
The government should enact legislation providing for more comprehensive regulatory oversight of market intermediaries. Policy options could include:
A licensing regime that incorporates minimum entry standards relating to the integrity, financial capacity, competence, operational capability, internal controls and supervisory systems; involves a comprehensive assessment by a securities regulator or SRO of these standards; provides for periodic and timely reporting by market intermediaries to the regulator or SRO in respect of their continued ability to meet these standards; and provides for a risk-based ongoing oversight program carried out by a securities regulator or SRO.
Alternatively, a regime that requires market intermediaries to meet the standards listed above on an ongoing basis, requires market intermediaries to provide periodic reports to the regulator or SRO and permits the regulator to take effective enforcement action if the standards are not met might be a less costly regulatory option that would make it easier for the regulator to detect problems at an early stage than does the current regime.
Principle 24
Securities regulators and SROs, as a group, should develop a comprehensive crisis management plan for dealing with the potential failure of market intermediaries.
Principles 27-29
The government should amend the securities legislation to specify high level standards for regulated exchanges' trading systems and rules with respect to transparency of trading (Principle 27); the prohibition, deterrence and detection of market manipulation and other unfair trading practices (Principle 28); and proper management of large exposures, default risk and market disruption (Principle 29).
Principle 28 (also Principle 9)
The government's proposal to introduce comprehensive prohibitions on market manipulation and insider trading and enhance penalties and enforcement powers should be implemented as soon as possible.
New Zealand Authorities' response
Annex 8 - Media release Geared Equities
News release
22 December 2004
Warning: Geared Equities / GEI Marketing Limited
The Securities Commission warns New Zealand investors in an Australian based fund, the Platinum International Fund (Platinum), about unsolicited mail from Geared Equities.
Geared Equities, registered in New Zealand as GEI Marketing Limited, recently sent a letter to investors of the Platinum International Fund about investors' ability to borrow against their investments. The letter invited investors to contact Geared Equities before 21 January 2005.
The unsolicited letter also included a statement claiming that the Securities Commission was aware that Geared Equities was writing to Platinum investors. The Commission has received a number of complaints about this statement in the letter.
Platinum investors should not rely on this statement.
The Commission was not aware that the letter was being sent by Geared Equities.
The letter appears to imply that the Commission approves or endorses Geared Equities' approach to investors. The Commission does not approve or endorse Geared Equities' letter or any other promotions or offers.
Geared Equities states that it complied with Australian law. Nevertheless the Commission warns investors to be cautious of such unsolicited offers and to seek specialist investment advice before taking up such offers.
* * * * *
Contact: Catherine Chapman phone 04 471 7659
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