The O'Brien Column: The stock exchange chooses new clothes

Peter V O'Brien

Saturday 17th April 2004

The new-look Stock Exchange (NZX) has been busy over the past year developing and regulating its business activities and administrative procedures.

The latest move was a statement seeking expressions of interest from people wishing to be considered for appointment as "members of NZX Discipline and the appeal panel."

NZX Discipline replaces the market surveillance panel, the complaints committee and disciplinary committee. The appeal panel provides an "independent right of appeal" from NZX Discipline.

There were several curious aspects to the statement, including matte wording, of which the quote in the previous sentence was an example.

It would seem the appeal panel actually provides the "right to an independent hearing of an appeal" from the discipline body.

The point was more than pedantic because there was a difference between an independent right of appeal and The National Business Review's term.

NZX's usage was one example of apparent strange wordings.

NZX said the discipline body was "a quasi independent body that determines whether there has been a breach of the rules that apply to the markets NZX operates and the participants in those markets."

The statement lacked a hyphen between "quasi" and "independent" so perhaps (but unlikely) quasi was intended as an adverb used in the sense (courtesy of the oxford) of "(introducing explanation) that is to say, as if it were."

Another meaning was more likely in the context; "seemingly; not really; half-; almost", or, commonly, "partly."

A discipline body that was only "partly" independent would be strange in the New Zealand administrative context, particularly if it had penalty powers, subject to appeal. (A right to appeal to another tribunal does not affect the independence of a tribunal of first instance.)

NZX has enough in-house lawyers and access to others outside to say precisely what it means and clarify the extent of the disciplinary body's independence.

It could be important for the two of the proposed 22 (yes, 22) members who must be "currently practising barristers and solicitors of at least seven years' practice."

Cynics might think a fair number of the proposed 22 have been tapped on the shoulder and suggested to apply, including some of the 11 "members of the public," who would have to get the exchange's information releases, visit its website or read scanty newspaper reports to know of the jobs' existence.

It seems NZX selects the members and the Securities Commission must "confirm" them. That should exclude the riff-raff, as should the provision regarding the appeal panel that "appointments are made by the Securities Commission based on the nominees put forward by NZX (emphasis added)."

The selection procedures do nothing to dispel the cynical view that NZX has no intention of sabotaging its carefully crafted image of a forward-thinking, dynamic, securities organisation.

Some of its recent initiatives were certainly worthy contributors to the desired image. The exchange became a listed company last year and the share price has soared since listing. NZX said on September 17 it would develop futures and options trading for New Zealand.

It gave effect to new corporate governance listing rules on October 29, announced a new market participant structure on December 4 and released the final proposal for a new legal and regulatory framework on December.

The "final proposal" was later amended in relation to discipline to provide for appeals and to ring-fence penalties for rules' breaches in a fund for educational and regulatory purposes.

By February 13 NZX was able to say it was, with Securities Commission approval, assuming regulatory responsibility for futures and options in New Zealand.

The exchange said on February 16 it had formed and launched four industry advisory boards: NZX Asset management, Debt Advisory; Futures & Options Advisory and Business Advisory.

A heading to the announcement said the boards were launched to "increase transparency and enhance communication."

NZX said on March 10 it proposed to develop central clearing house to "better protect and bolster both the robustness and integrity of New Zealand's securities."

New indices were developed for particular market segments during the period under review.

It was an impressive body of work and an equally impressive rapid expansion of empire. Let's hope the imperial household avoids any mental aberrations and chooses tailors carefully to ensure new clothes are real.

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