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First Annual Oversight Review Of NZ Exchange

Securities Commission Completes First Annual Oversight Review Of New Zealand Exchange Limited

NZX’s performance as a registered exchange is good, the Securities Commission’s first annual oversight review of the exchange has found.

“However, the Commission has made recommendations for improvement in a number of areas”, Commission Chairman Jane Diplock says.

The Commission has communicated its concerns and recommendations to NZX, NZX Discipline and the Special Division.

“NZX has agreed to take specific action in response to certain recommendations and has committed to do so by the end of the 2006 calendar year”, Jane Diplock says. “If NZX takes these actions within the stated timeframe, the Commission believes this will properly address those recommendations.”

NZX has committed to reconsider its position on the Commission’s remaining recommendations and has undertaken to report back to the Commission by the end of the 2006 calendar year.

The Commission’s overall conclusion is that NZX is satisfying its obligation to operate its markets in accordance with its conduct rules.

The Commission reviewed NZX’s performance of its regulatory functions as a registered exchange under the Securities Market Act 1988. This review focussed on NZX’s arrangements in the 2005 calendar year for discharging its obligations.

The Commission reports on NZX’s performance in eight key areas:
• conflict management;
• arrangements for supervision of Market Participants;
• arrangements for supervision of Listed Issuers;
• arrangements for release of market information;
• market operations and infrastructure;
• disciplinary arrangements and NZX Discipline;
• supervision of NZX as a Listed Issuer by the Special Division; and
• governance.


Among its recommendations, the Commission notes:

• NZX and NZX Discipline should together review the administrative support and resource arrangements in place for NZX Discipline. These resource arrangements should be reviewed regularly to ensure that NZX Discipline receives all the resources it requires to enable it to continue to carry out its functions effectively.

NZX has committed to do this by the end of this calendar year.

• Given NZX’s position as both a Listed Issuer and regulator of all other Listed Issuers listed on its markets, NZX should set an example of full compliance with all lawful directions or requests from the Special Division.

NZX has undertaken to report back to the Commission by the end of this calendar year.

• Given the risk of lack of clarity regarding roles in responding to a crisis, the Commission recommends that responsibilities of NZX’s Chief Executive Officer and Head of Regulation for exercising delegated powers be reconsidered by the Board of NZX to ensure that the responsibilities are clarified.

NZX is of the view that these responsibilities are sufficiently clear at present, but has agreed to consider whether any further clarification is desirable, and to report back to the Commission by the end of this calendar year.

In conducting its review, the Commission sent questionnaires to NZX, NZX Discipline, the Special Division and the Appeal Panel seeking information the Commission considered necessary to effectively evaluate NZX’s performance.

The Commission requested copies of any procedures manuals and process documents that evidenced NZX’s polices and procedures. Where written procedures and policies were not available, the Commission requested written explanations and information from NZX in response to each specific information request.

A significant amount of information was provided by NZX in response to the questionnaires. NZX also provided a number of procedures manuals and process documents. Questions relating to NZX Disciplines, the Special Division and the Appeal Panel were answered by the Chairs of those bodies.

Commission staff selected and reviewed a sample of NZX’s files.

Commission staff conducted interviews with NZX personnel and Board members. Commission staff also interviewed the Chairman of NZX Discipline and the Chairman of the Special Division. A total of 29 interviews were conducted.

The Commission will conduct an oversight review of NZX each year. This first oversight review has focussed on NZX’s performance of its obligations during the 2005 calendar year from an overall perspective.

Future oversight reviews may address particular areas in greater depth. The concerns and recommendations that the Commission has recorded as a result of this review, NZX’s actions and response to these recommendations, and relevant intervening matters, will be reviewed by the Commission next year.

The Commission’s report is published at


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