The Commission has published the report of its first oversight review of NZX's performance as a registered exchange.

The Commission's recommendations and the responses from NZX, NZX Discipline and the Special Division are included in the report.

NZX has agreed to take specific action on some matters by the end of the 2006

• disciplinary arrangements and NZX Discipline;
• supervision of NZX as a listed issuer by NZX Discipline's Special Division; and
• governance.

The report covers NZX's performance in relation to:

• conflict management;
• arrangements for supervision of market participants;
• arrangements for supervision of listed issuers;
• arrangements for release of market information;
• market operations and infrastructure;

The Commission reviewed NZX's performance of its regulatory functions as a registered exchange under the Securities Markets Act 1988.

The review was conducted under section 10(b), 10(c) and 10(caa) of the Securities Act 1978. It focused on NZX's arrangements in the 2005 calendar year for discharging its obligations.

The Commission considered written material and procedural documents supplied by NZX, and carried out on-site file reviews and interviews with NZX personnel and board members.

The report Oversight Review of NZX - 2005 is available at www.seccom.govt.nz or in hard copy from seccom@sec-com.govt.nz or 04 472 9830.

Investigation into Feltex prospectus and disclosure

The Feltex IPO was an offer to the public of new shares and shares already held by the previous owner Credit Suisse First Boston Asian Merchant Partners (CSFBAMP).

When a person who owns shares sells them via an IPO, that person and the company both have responsibilities under the Securities Act 1978 for the offer. In the case of Feltex, both CSFBAMP and Feltex, as issuers of the securities, were responsible for making sure that the IPO offer documents complied with the law and did not mislead investors.

CSFBAMP was granted an exemption from the requirement to include in the prospectus information about themselves as an issuer of the securities. This information was irrelevant for investors as the offer was

for shares in Feltex, not in CSFBAMP. The exemption did not relieve CSFBAMP from its other obligations regarding the prospectus.

The prospectus was required to, and did, disclose CSFBAMP as the vendor and the price it originally paid for the company. The price at which the shares were sold in the IPO was set after a book building process involving institutional investors. That process was explained in the prospectus. An indicative price range was also in the prospectus.

The Commission's jurisdiction in relation to an IPO is to determine

whether the offer documents comply with the law and are not misleading.

The Commission began investigating Feltex in April 2005 after the first of several profit downgrade announcements. The prospectus was reviewed in regard to disclosure concerning projected and historical

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