Sec Com at odds with NZX over some functions

Wednesday 23rd December 2009

NZX’s performance as a registered exchange was ‘good,’ according to a Securities Commission review covering calendar 2008, though the regulator would prefer the chief executive not have direct oversight of regulatory and commercial functions.

The review found that NZX took appropriate action to ensure listed issuers and market participants were in compliance with listing rules, the commission said in a statement. It also tightened rules relating to back-door and reverse listings, which should benefit investors and maintained an appropriate supervisory role.

The stock and debt market operator also managed conflicts of interest between its commercial and regulatory functions, the commission said in its fourth annual review of the NZX. Still, the commission is at odds with the company on oversight of the two arms of NZX.

“Dual delegation for the supervisory function of NZX to both the Head of Supervision and the NZX CEO is inadvisable, given that the CEO is also responsible for NZX’s commercial functions,” the commission said.

“International best practice is for the commercial and regulatory functions of demutualised exchanges such as NZX to be formally separated to remove the potential for supervisory functions being de-prioritised for commercial reasons,” it said. “The commission notes that NZX has a different view.”

In response to the commission’s statement, NZX said it noted that “no incidents of conflict of interest between NZX’s frontline regulatory role and its commercial operations” had been found.“On a number of occasions NZX Market Supervision staff made regulatory decisions that had negative commercial impacts on NZX, the exchange operator said in a statement today. This demonstrates that NZX. “can and does place market integrity above any other consideration.”

Still, a perception of conflict of interest does exist, NZX said. It would be in the market’s best interests that “all enforcement capability is held by a single agency that has the expertise and ability to investigate thoroughly, and apply meaningful penalties, where conduct on all markets fails to meet high standards.”

NZX said the functions of the New Zealand Markets Disciplinary Tribunal, which is independent of the exchange, should also be folded into the new agency.

Shares of NZX were unchanged at $2.31 today and have climbed about 40% this year.

FULL REPORT

Businesswire.co.nz

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