The Securities Markets and Institutions Bill (Bill) introduced into Parliament late last year is designed to promote confidence in the New Zealand securities market and is part of a package of reforms precipitated by the August 2000 Memorandum of Understanding on Business Law Co- ordination between Australia and New Zealand.

In the spirit of the memorandum, the Bill seeks to bring our law more in line with Australian law, particularly in the key area of disclosure, by introducing a requirement for directors and officers of public issuers to disclose relevant interests and dealings in the securities of the public issuer within 5 trading days. In some cases, this requirement could extend to non-listed shares. However, as this was not intended, it is expected that the Bill will require some re-drafting.

The Bill also introduces a statutory continuous disclosure regime for public issuers to replace the disclosure obligations found in the New Zealand Stock Exchange Listing Rules (Rules).The Rules require an issuer to release information to the Exchange as soon as its value to the security holder exceeds its value as information confidential to the issuer.

Under the new regime, public issuers must immediately disclose any material information they are aware of or ought reasonably to have been aware of that is not generally available to the public. 'Material information ' is broadly defined to include any information concerning the issuer that a reasonable person would expect to influence those who commonly buy and sell the affected securities (influence trading test).

The new regime does not include exceptions allowing commercially sensitive information to be withheld. However it is widely assumed that the Ministry of Economic Development will introduce 'exemptions ' in the form of regulations before the Bill comes into effect.

The influence trading test proposed by the Bill is different to the Australian standard. In Australia, public issuers are required to disclose any information a reasonable person would expect to have a material effect on the price or value of the securities (material price change test)as well as information that might influence trading. In practice, only information passing the material price change test is immediately disclosed.

The material price change test is more accurate than the influence trading test, and limits compliance costs for issuers. In our view, further reform may be required to bring our test in line with the Australian standard.
The Bill also gives the Commission the power to make temporary enforcement orders requiring the publication of corrective statements or directing an exchange to suspend trading in the affected securities.

Non-compliance with an order is a criminal offence, punishable by a fine of up to $30,000. This power will allow the Commission to act immediately, giving it a safe window in which to apply to the court for a more permanent order.

Public submissions on the Bill are currently being considered by the Finance and Expenditure Select Committee. The committee is due to report back to Parliament in early June.

This is a general summary only and should not be taken as a substitute for specific advice.

For further information, please contact Tim Matthews:
tim.matthews@phillipsfox.com

Web site: Phillips Fox