2007 Annual Report

Report against the Statement of Intent

The Commission published its first Statement of Intent (SOI) under the Crown Entities Act in June 2006. This set out the broad parameters of work for the three years 2006 to 2009 and a detailed plan for the 2006-2007 financial year.

Objectives set in the SOI for the 2006-2007 financial year are reported against below. The Statement of Service Performance on page 44 reports details of activities under each output for the 2006-2007 year.

Enforcement

Objective - enforcement work is targeted at those issues most likely to deter bad practice in key areas of market practice.

Objective - our actions are seen to have been effective under our enforcement powers.

Objective - our responses to enforcement requests from overseas regulatory bodies are provided on time.

The SOI said the Commission will have successfully achieved the enforcement objectives when it has:

• taken appropriate enforcement action if a person has failed to comply with securities law;
• in each case, achieved the desired regulatory outcome;
• provided responses to enforcement requests from overseas regulatory bodies within the agreed timeframes.

Performance against enforcement objectives
The Commission put in place priority and case selection criteria for allocating resources so that enforcement work was targeted at issues most likely to deter bad practice in the areas most relevant to good market practice. Litigation efforts were largely directed to the Tranz Rail insider trading case, but resources remained available to take other cases if necessary.

The Commission:

• achieved a settlement in the Tranz Rail case for some $27.5 million which, after costs, will be paid to classes of shareholders as approved by the Court;
• took appropriate enforcement actions in the Tricom, Hanover, CMI, NearZero and Locke cases see pages 6-7), and others detailed in the Statement of Service Performance;
• achieved in each case, the desired regulatory outcome of addressing and, where possible, remedying the breach of the law. As well, the desired regulatory outcome of informing market participants of the standards expected in the markets was achieved in each of these cases;
• responded to all enforcement requests from overseas regulators on time.

Monitoring and market oversight

Objective - monitoring and market oversight work is targeted at those issues most likely to deter bad practices in key areas.

Objective - NZX fulfils its regulatory role in the market.

The SOI said the Commission will have successfully achieved the monitoring and market oversight objectives when it has:

• achieved the desired regulatory outcome in cases where action is taken;
• conducted and reported on its oversight review of NZX and followed up any areas identified as requiring attention.

Performance against monitoring and market oversight objectives
The Commission put in place priority and case selection criteria for allocating its work. The criteria are reviewed regularly so that the focus is on key areas where our actions will effectively contribute to a well-regulated and well-informed market.

The Commission achieved the desired regulatory outcome:

• in its reviews of NZX by reporting publicly on NZX’s performance of its regulatory role in relation to its markets;
• in monitoring and oversight activities described at pages 8-10 and detailed in the Statement of Service Performance by appropriately addressing breaches of the law and by signalling the standards of behaviour expected in the markets;

The Commission published its report Oversight Review of NZX 2005 on 26 September 2006 which included recommendations for improvement. Responses to, and actions resulting from, those recommendations were followed up during the second review carried out in April and May 2007 and reported on in Oversight Review of NZX 2006 published on 28 June 2007.

Law reform

Objective - a regime is in place for financial intermediaries which is relevant and enforceable.

Objective - securities law is up-to-date and useful and meets IOSCO principles.

Objective - there are appropriate standards for regulating financial reporting practices of issuers and appropriate auditor oversight.

The SOI said the Commission will have successfully achieved the law reform objectives when it has:

• communicated to government relevant recommendations for law reform;
• commented on relevant government discussion documents and draft legislation;
• participated in industry consultation on potential regulatory roles.

Performance against law reform objectives
The Commission:

• did not have cause to make any formal recommendations for law reform during 2006-2007;
• commented on relevant discussion documents and draft legislation for the review of financial products and providers, review of financial intermediaries, and Business Law Reform Bill; and
• took part in consultation with industry on the review of financial products and providers and the review of financial intermediaries.

Exemptions and authorisations

Objective - all exemptions and authorisations are completed within the agreed time.

Objective - an effective regime is in place to regulate approval of trustees and statutory supervisors and authorisation of futures dealers.

The SOI said the Commission will have successfully achieved the exemptions and authorisations objectives when it has:

• dealt effectively with applications for exemptions and authorisations within the time agreed with the applicants;
• introduced and communicated an effective regime for authorisations.

Performance against exemptions and authorisations objectives
The Commission:

• granted 63 exemptions, 6 authorisations and 9 approvals of market participants;
• completed 100 % of applications within the time agreed with applicants;
• consulted the public on regulation of "rolling spots" foreign exchange contracts and contracts for difference as futures contracts. This contributed to a review of futures dealers authorisations which is underway and expected to be settled later in 2007.

International cooperation and recognition

Objective - the Commission’s performance within the existing legislative framework is positively regarded internationally.

Objective - the Commission makes an effective contribution to the work and development of IOSCO and other relevant international bodies.

Objective - the Commission has a strong relationship with ASIC

The SOI said the Commission will have successfully achieved the international cooperation and recognition objectives when it:

• makes use of the IOSCO MMOU and bilateral MOUs to help detect international fraud and effectively enforce securities law;
• takes part as a speaker and adviser at international forums;
• fulfils relevant duties e.g. committee membership and chairmanship, which advance the work of IOSCO and other relevant bodies;
• meets regularly with ASIC Members and staff and has developed programmes for cooperation.

Performance against international cooperation and recognition objectives
The Commission:

• made use of the IOSCO MMOU eight times in the course of its enforcement work;
• spoke at a wide range of international forums as described on page 15;
• fulfilled all its duties to IOSCO, in particular Chairman Jane Diplock chaired the Executive
• Committee which increased its encouragement and assistance to member jurisdictions to join the IOSCO MMOU;
• met with ASIC on two occasions; worked with ASIC at an operational level to develop a regime to regulate securities offered to the public under the Trans Tasman mutual recognition scheme.

Public understanding

The Commission’s SOI 2006-2009 set out public understanding objectives to be achieved over the next three financial years.

Objective - investors and potential investors have access to information to help them understand the law and practice of securities.

Objective - people are aware of the work and views of the Commission.

The SOI said the Commission will have successfully achieved the 2006-2009 public understanding objectives when:

• participation in financial education programmes in schools increases;
• surveys and/or feedback indicate participants in education programmes have greater understanding of securities matters;
• the Commission’s messages about the securities markets are published in relevant media and website visitor numbers increase.

Performance against public understanding objectives
The Commission:

• sponsored the Financial Studies Paper for senior secondary school students delivered by Enterprise New Zealand Trust. 603 students took the paper in 2006 an increase from 440 the previous year;
• received feedback from school teachers delivering the Financial Studies Paper that indicated resource materials provided by Enterprise New Zealand Trust are relevant and useful;
• received responses from market participants on its draft Guide to New Securities Law which indicated that the publication is useful and understandable;
• issued 32 news releases about its work which were published in the news media and placed articles about new securities law in relevant magazines e.g. New Zealand Lawyer, Infinsia, and Asset Magazine;
• received an average of 37,000 visits per month to its website (30,000 in the 2005-2006 year).