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New Zealand

The New Zealand government has recently tabled the Securities Markets and Institutions Bill, in the first major revamp of New Zealand's securities and markets legislation since 1988. The Bill aims to increase both domestic and international confidence in New Zealand's securities markets and institutions by strengthening monitoring and the enforcement of securities law, requiring greater disclosure and providing for more effective enforcement of breaches. It will also bring New Zealand law into line with Australia, particularly in the areas of continuous disclosure and the enforcement of insider trading.

The Bill introduces a continuous disclosure regime, similar to that in Australia. The proposed law will require listed companies to disclose price sensitive information to the exchange immediately that they become aware of it. It will only be possible to withhold information if it is covered by one of the exceptions set out in regulations expected to be released next year. Directors and senior officers will be required to disclose their securities dealings at the time they occur. These measures are designed to act as a deterrent to insider trading, counter distortion of the market through rumours, and enable investors to make informed investment decisions. Anyone who suffers a loss caused by a breach of the continuous disclosure regime can seek compensation through the courts.

The continuous disclosure regime will raise the compliance costs for companies listed solely on the New Zealand exchange, but should make things easier for businesses working in the Trans-Tasman environment. It is intended to give the New Zealand exchange more credibility by dispelling the perception that disclosure rules are not enforced as stringently in New Zealand as they are in Australia. The introduction of a stricter regime is timely. Last month the Australian Stock Exchange announced changes to its foreign exempt listing rules. This was said to be partly because New Zealand's disclosure requirements were thought to be inadequate.

Trans-Tasman offers of securities will also be easier under the Bill. The Bill contains provisions to enable mutual recognition agreements that recognize overseas regulatory requirements for cross-border offers of securities. Issuers will only have to comply with one set of offer regulations, which should reduce compliance costs.

The Securities Markets and Institutions Bill gives greater powers of investigation and enforcement to the Securities Commission, as a consequence the New Zealand Stock Exchange's position as "the" listed company self-regulating body is usurped. In particular, the Securities Commission will have the power to issue directions to the exchange to suspend securities dealings or take other actions relating to dealings. The exchange will be under an obligation to provide information and assistance to the Securities Commission to enable effective co-regulation. The rules of the exchange will also be subject to the Commission's approval.

Under the proposed legislation the Securities Commission will have increased investigative powers and take on a much larger role as a public civil enforcement agency for insider trading. At present the Securities Commission has a minor role confined to investigating breaches of insider trading laws and publishing the outcome. It is up to the shareholders to bring a private action against the insider. Although the costs of the action are borne by the listed company, this system has been ineffective and often onerous for the private claimant. Under the new Bill the Securities Commission will be able to bring its own action against an insider or take over an existing action if it is in the public interest.

The Bill also increases penalties under the Securities Act. It is hoped that this will act as a deterrent and will increase the effectiveness of the Act. The government has not yet made insider trading a criminal offence, but it has indicated that this will be considered in the near future.

The Securities Markets and Institutions Bill is expected to come into force next year.

James Aitken and Hannah McKechnie

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