New Zealand Securities Commission - The Bulletin: January 2006

Access Brokerage inquiry

The Commission has released a report which reviews the performance by NZX of certain of its regulatory functions as a registered exchange during 2003 and 2004, in the context of the collapse of Access Brokerage.

On Friday 3 September 2004 NZX was informed by the majority shareholder of Access Brokerage Limited that there was a significant deficit in the firm’s client trust account, and that the company was insolvent.

Before trading commenced on Monday 6 September 2004, NZX declared Access a defaulter under the NZX Participant Rules. Access was suspended from trading in NZX markets. Later that day Access was placed in interim liquidation. It was placed in liquidation on 8 September 2004.

NZX’s securities markets are operated under a co-regulatory regime by the Securities Commission and NZX. The co-regulatory framework facilitates frontline regulation by NZX, coupled with, and reinforced by, the Securities Commission as the statutory regulator.

Both NZX and the Commission have, in their respective roles, conducted inquiries following the collapse of Access Brokerage in September 2004.

The Commission’s inquiry did not seek to establish the cause of the collapse of Access Brokerage. In this regard NZX is bringing disciplinary action against Access and its CEO,

and the Serious Fraud Office has laid charges under the Crimes Act 1961. The Commission also recognises

the effective action NZX took at and around the time of the Access collapse.

The Commission’s report focuses on NZX’s broker compliance programme during the early stages of its development, in particular in 2003 when an inspection of Access Brokerage was conducted.

The report, An Inquiry into the Performance by NZX of its Regulatory Functions as a Registered Exchange during 2003 and 2004 Prior to the Collapse of Access Brokerage, is available at www.seccom.govt.nz or by phoning 04 472 9830.

Information control in market participant firms

The need for market participants to have good information controls i.e., Chinese walls, was highlighted in a report published by the Commission in November 2005.

The report, which followed our inquiry into trading in shares of Wrightson Limited in June 2004, concerns activities of ABN AMRO Craigs Limited, an NZX firm, during a takeover offer in 2004.

The firm, acting for the offeror in the takeover, received non-public information that a substantial security holder intended to accept the takeover offer. It passed this information on to two other NZX firms, and to its own client advisers, before the information was released to the market.

The Commission’s inquiry arose from a complaint by Wrightson Limited, the company which was the subject of the takeover.

“The decision by ABN AMRO Craigs to distribute non-public and potentially sensitive information about the takeover to select firms and client advisers ahead of the market being informed was inappropriate,” Chairman Jane Diplock said.

“Selective disclosure of information in this way, while not unlawful, is not acceptable practice on the part of a market participant. This case illustrates the need for all market participants to have robust information controls.”

Market participants not only need to have policies and procedures in place, but also need to ensure that people handling non-public and price sensitive assignments are aware of and adhere to these procedures.

The report, Information Control in Market Participant Firms is available at www.seccom.govt.nz or by phoning the Commission on 04 472 9830.

(continued page 2)

ALSO IN THIS ISSUE:

P2

P3

P4

P4

Exemption for employee share schemes

New twist in telephone share scams

Offer terms should not constrain regulators

IOSCO work on audit quality and auditor independence


		Access Brokerage inquiry The Commission has released a report which reviews the performance by NZX of certain of its regulatory functions as a registered exchange during 2003 and 2004, in the context of the collapse of Access Brokerage. On Friday 3 September 2004 NZX was informed by the majority shareholder of Access Brokerage Limited that there was a significant deficit in the firm’s client trust account, and that the company was insolvent. Before trading commenced on Monday 6 September 2004, NZX declared Access a defaulter under the NZX Participant Rules. Access was suspended from trading in NZX markets. Later that day Access was placed in interim liquidation. It was placed in liquidation on 8 September 2004. NZX’s securities markets are operated under a co-regulatory regime by the Securities Commission and NZX. The co-regulatory framework facilitates frontline regulation by NZX, coupled with, and reinforced by, the Securities Commission as the statutory regulator. Both NZX and the Commission have, in their respective roles, conducted inquiries following the collapse of Access Brokerage in September 2004. The Commission’s inquiry did not seek to establish the cause of the collapse of Access Brokerage. In this regard NZX is bringing disciplinary action against Access and its CEO, and the Serious Fraud Office has laid charges under the Crimes Act 1961. The Commission also recognises the effective action NZX took at and around the time of the Access collapse. The Commission’s report focuses on NZX’s broker compliance programme during the early stages of its development, in particular in 2003 when an inspection of Access Brokerage was conducted. The report, An Inquiry into the Performance by NZX of its Regulatory Functions as a Registered Exchange during 2003 and 2004 Prior to the Collapse of Access Brokerage, is available at www.seccom.govt.nz or by phoning 04 472 9830.
		Information control in market participant firms The need for market participants to have good information controls i.e., Chinese walls, was highlighted in a report published by the Commission in November 2005. The report, which followed our inquiry into trading in shares of Wrightson Limited in June 2004, concerns activities of ABN AMRO Craigs Limited, an NZX firm, during a takeover offer in 2004. The firm, acting for the offeror in the takeover, received non-public information that a substantial security holder intended to accept the takeover offer. It passed this information on to two other NZX firms, and to its own client advisers, before the information was released to the market. The Commission’s inquiry arose from a complaint by Wrightson Limited, the company which was the subject of the takeover. “The decision by ABN AMRO Craigs to distribute non-public and potentially sensitive information about the takeover to select firms and client advisers ahead of the market being informed was inappropriate,” Chairman Jane Diplock said. “Selective disclosure of information in this way, while not unlawful, is not acceptable practice on the part of a market participant. This case illustrates the need for all market participants to have robust information controls.” Market participants not only need to have policies and procedures in place, but also need to ensure that people handling non-public and price sensitive assignments are aware of and adhere to these procedures. The report, Information Control in Market Participant Firms is available at www.seccom.govt.nz or by phoning the Commission on 04 472 9830. Investments illegally offered by Global FX Advertisements for investments in the Global FX Secure Trust II were banned by the Commission late last year. The investments were offered by Global FX Secure Pte Limited (Global FX) which is incorporated in Singapore. However, the directors and controlling shareholders, Dr Nico and Mrs Irina Francken, are New Zealand residents. Dr and Mrs Francken operate a Dunedin-based company called (continued page 2) ALSO IN THIS ISSUE: P2 P3 P4 P4 Exemption for employee share schemes New twist in telephone share scams Offer terms should not constrain regulators IOSCO work on audit quality and auditor independence

Access Brokerage inquiry

Information control in market participant firms

Investments illegally offered by Global FX