SC class exemptions for directors and officers
29 March 2004
Securities Commission class exemptions for directors and officers
The Securities Commission will grant some class exemptions in respect of the directors’ and officers’ disclosure regime under the Securities Markets Act 1988 and the Securities Markets (Disclosure of Relevant Interests by Directors and Officers) Regulations 2003. This law is due to take effect on 3 May 2004.
The Commission has received a number of applications for exemptions from aspects of the new disclosure regime. Decisions have been taken on some of these. The exemptions the Commission will grant are summarised below.
Interests in bank accounts and term deposits
An exemption will be granted from the requirement for directors and officers of public issuers which are registered banks to disclose relevant interests in bank accounts and term deposits issued by those registered banks and related bodies corporate.
Disclosure of details of bank accounts and term deposits, (which are interests in securities under the law) would raise significant privacy and practical compliance issues for the directors and officers concerned. This disclosure would not provide information that furthers the anti-insider trading purpose of the regime.
Individual life insurance and superannuation scheme interests
An exemption will be granted from the requirement for directors and officers of public issuers to disclose relevant interests held in superannuation and life insurance products provided by the public issuer or a related body corporate.
Disclosure of details of these interests would, like disclosure of bank accounts, raise significant privacy issues for the directors and officers concerned. This disclosure would not provide information that furthers the anti-insider trading purpose of the regime.
Interests already disclosed to the New Zealand Stock Exchange
An exemptions will be granted from the requirement for directors and officers of public issuers to disclose their relevant interests in securities of the public issuer or a related body corporate that have already been disclosed prior to 3 May 2004 to the New Zealand Stock Exchange, where such disclosure is required under the listing rules.
Requiring the disclosures to be made again would result in unnecessary duplication of information already given to the market.
An exemption will be granted from the requirement for directors and officers of public issuers to disclose relevant interests in passive index funds of the public issuer or a related body corporate.
The risk of insider trading in such funds is minimal, so that the burden of disclosure is not justified. The disclosure of such interests would not further the anti-insider trading purpose of the regime.
Employee Share Purchase Schemes and Dividend Reinvestment Plans
An exemption will be granted for directors or officers who are beneficiaries of an employee share purchase scheme or who participate in a dividend reinvestment scheme, from the obligation to disclose those interests within 5 trading days. This exemption is subject to the condition that allotments made under the scheme are notified by the public issuer concerned within 1 month of allotment. The disclosure must include the names of the directors and officers acquiring the interests, along with the number of securities allotted to each person.
The timing of those allotments is not affected by contemporaneous market information, and the administrative burden on individuals of disclosing such allotments within 5 working days outweighs the benefit of the information being released at that time. The exemptions also recognise that in practice, the disclosure in these circumstances can more readily be made by issuers, rather than the directors and officers themselves.
This exemption does not affect the timing exemption contained in the Regulations, which is intended for directors and officers who are trustees of employee share purchase schemes.
Section 19X of the Securities Markets Act 1988 contains an exemption from the disclosure requirements of the regime for directors and officers of co-operative companies who hold, acquire, or dispose of a relevant interest in a non-listed security of the co-operative company.
For the exemption to apply, the director or officer must be a transacting shareholder of the company and the interest must be acquired or disposed of in the ordinary course of the director’s or officer’s business.
Many people who transact with co-operatives hold their co-operative shares through partnerships, family trusts, and companies, such that the individual who is a director or officer is not, in fact, a transacting shareholder of the company.
An exemption will be granted, to the same effect as the exemption in section 19X, for directors and officers of any co-operative company who have relevant interests in shares of the company and who would themselves, if they held the shareholding directly, qualify as transacting shareholders of the company. The exemption gives practical effect to the intention of section 19X of the Act.
The Commission is working with officials on other matters, such as the way in which the regime affects overseas issuers, and practical concerns relating to disclosure of interests on commencement of the regime.
This media release summarises the exemptions the Commission has decided to grant to date. The final form of the exemptions will be settled as the exemption notices are drafted, and in consultation with the applicants for these exemptions.
Further Exemption Applications Invited
Market participants may still apply for further exemptions. The Commission may grant exemptions to provide flexibility to apply the law as intended. However, the Commission will only grant exemptions consistent with the policy of the law.
Any further exemption applications should be sent to the Commission as soon as possible, to allow time for them to be considered before the regime commences.