22 June 2006

The Securities Legislation Bill – designed to encourage investment in New Zealand’s capital markets by strengthening the regulatory framework embodied in securities, securities trading, and takeovers laws – will become law later this year.

The Bill aims to promote confidence and participation in New Zealand’s securities markets by addressing a number of deficiencies in current law.

Earlier this year, the New Zealand Commerce Minister and the Australian Treasurer signed a revised Memorandum of Understanding on Coordination of Business Law between Australia and New Zealand aimed at reducing unnecessary compliance and transaction costs arising from trans-Tasman differences in business laws. The treaty increases choices for New Zealand firms and investors in the global marketplace.

The resultant work programme includes regulation of financial intermediaries, disclosure regimes in securities law, competition law, insolvency law, intellectual property, and insurance regulation.

This agreement also underpins a regime for mutual recognition of securities offerings between the two countries, which is likely to come into force this year.

Where issuers opt into the regime, they will be able to offer their securities in both countries, using one prospectus. The regime will promote trans-Tasman investment, enhance competition in capital markets, reduce red tape costs for business, and increase the choice for investors.

New Zealand’s close economic relationship with Australia – its largest trading partner – enables the countries to cooperatively influence international trends that represent challenges to both economies, such as international regulatory convergence and competition for foreign investment.

The government has also significantly boosted funding for court cases this year, so that the Commerce Commission and the Securities Commission can better protect consumers and investors.

The Commerce Commission oversees competition and fair-trading law, and the Securities Commission oversees securities markets, and is pursuing litigation under new insider trading powers.

“Dynamic and effective capital markets that have the confidence of international and domestic investors are critical,” Commerce Minister Lianne Dalziel said. “The government’s support for the Commerce Commission and Securities Commission ensures that businesses can work in an environment that helps foster the growth of globally competitive firms.”

Dalziel noted that, in terms of New Zealand’s relationship to the international investment world, the key is ensuring that New Zealand compares favourably with other investment destinations when institutional investors are looking for opportunities. Changes introduced in securities markets legislation, takeover rules and restrictions on insider trading have improved New Zealand’s reputation considerably.

The main provisions in the new securities legislation are designed to bring New Zealand’s laws in this sphere into step with international norms, and include the following:

• a new insider trading regime focused on the damage such conduct poses to investors’ confidence in financial markets;
• prohibitions against market manipulation;
• improving the investment adviser and broker disclosure law; and
• a complete overhaul of the penalties and remedies available under securities and takeovers law, aimed at deterring illegal behaviour, and encouraging compliance.

Regulations will be required once the new securities legislation comes into force to ensure the new regime is sufficiently flexible, and can be updated to address new developments in securities markets – particularly relating to insider trading and market manipulation exemptions, which deal with market efficient conduct.