NZX sees scope for smaller regulatory role

Monday 24th August 2009

NZX, operator and regulator of the New Zealand stock exchange, is willing to shed a range of current regulatory duties in the interests of market efficiency and reputation, but not before the Securities Act is rewritten.

In a report for the Capital Markets Development Taskforce, released today, the NZX argues that changes can be justified in five areas of current NZX responsibility:

• Remove NZX from supervising NZX Participants' advice functions, since the Securities Commission becomes responsible for these as part of the new Financial Advisers Act;
• Remove NZX from supervising prudential capital and client funds of Market Participants, given the Reserve Bank of New Zealand's growing ability in that role;
• Consolidate the approval of capital-raising documentation, which currently involves NZX, the Companies Office and the Securities Commission. It suggests NZX's remaining role be limited to the Listing Rules "such as they may differ from legislation in certain requirements;
• Remove NZX’s enforcement function to the Securities Commission or create a standalone body from the current New Zealand Markets Disciplinary Tribunal, which is currently established by but separate from NZX;
• Clarify the scope and remit of oversight reviews across NZX and potentially other regulators.

NZX argues strongly that it should maintain its day-to-day regulatory functions, many of which involve operating in real-time and require fast responses or complex, technical compliance which NZX is best-placed to monitor.

It also stresses that its report only deals with NZX, that other parts of the securities regulatory framework require similar examination, and that no changes should be contemplated until after the critically important rewrite of the Securities Act.

"There are no 'burning platform' catalysts for change," the NZX document says. "Any wholesale change prior to the fundamental rewrite of the Securities Act is as likely to be wrong as right, and may prejudice that process.

"Many of the issues that have imperiled investor outcomes, stymied productive innovation, and stunted the growth of the capital markets can be tracted directly to the obsolete nature of much of the Securities Act, which has not been strategically or substantively addressed since 1978."

Prepared at the request of the Capital Markets Development Taskforce, the NZX report uses highly defensive language in its opening sections to rebut critics who claim that NZX should not be both a listed entity and the regulator of the market in which it is listed.

However, a study of securities regulation around the world showed there was no such thing as a "best practice" model, with jurisdiction and circumstances dictating a wide range of possible choices.

"The blanket assertion that NZX would use its regulatory mandate to manipulate market outcomes - thereby generating more revenue for itself - has no underlying logic beyond sophistry and soundbites," says the document.

"Such behaviour is not only illegal but it would undermine the long term value of our markets and, by association, the value of NZX."

Businesswire.co.nz

Comments from our readers

No comments yet