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Swain letter to ASX

22 January 2002 Media Statement

Swain letter to ASX

Commerce Minister Paul Swain has released his letter to the Australian Stock Exchange outlining concerns over ASX proposals to significantly lift the threshold for listed entities to qualify for Foreign Exempt Status.

Paul Swain said such a move would increase compliance costs to companies listed on both the NZSE and ASX.

“I have pointed out that, consistent with the CER Agreement and MOU on Business Law Co-ordination, we should be looking to reduce the costs of firms having to comply with multiple laws in a transTasman market – not make it more complicated.

“Historically New Zealand companies have been given preferential treatment on Foreign Exempt Status by not having to meet either the ‘profit’ test or ‘net tangible asset test’.

“Suggestions that the ASX might treat New Zealand listed companies precisely the same as any other foreign listed entity is a backward step, and one that I personally would not like to see taken.

“I recognise that it is the ASX’s prerogative to change the rule. For this reason I have suggested, if the rule change does happen, that we work together to minimise compliance costs for dual listed companies.

“ASX managing director Richard Humphry has now responded to my letter and indicates a Consultation Paper will be released for comment this month.

“His response affirms the ASX’s commitment to avoid unnecessary administration and compliance costs for its customers. This is precisely the aim of our proposals.

“While I respect Mr Humphry's intention that the ASX retains direct responsibility and authority for the administration of its listing contracts, I do not believe that our proposals undermine this right.

“Our relationship to Australia is unique and that should be recognised,” Paul Swain said.



Maurice Newman
Australian Stock Exchange
Level 11
20 Bond Street

Dear Maurice

Following our initial representations to the ASX on its proposal to significantly lift the threshold for listed entities to qualify for Foreign Exempt Status, my officials have been in discussions with John McMurtrie, Karen Hamilton and Catherine Officer. These have focused on ways in which the compliance costs to entities listed on both the NZSE and ASX could be minimised, should the ASX proceed with its proposal. I would like to thank the ASX for its willingness to engage in a productive dialogue with my officials.

The most recent meeting was held on 20 November. My officials followed this up with a paper outlining possible modifications to the operation of the listing rules that would reduce unnecessary compliance costs associated with dual listing. At that time it was understood that as the release of the discussion document on the proposed Foreign Exempt Status rule change was imminent it would not be possible for the ASX to address all of our proposals before this release, but that discussions on the paper would continue post-release. I understand that the release may now be delayed to January 2002. I would hope that this provides additional time for ASX consideration of our proposals, with a view to incorporating them into the discussion document.

I would also like to take this opportunity to summarise the NZ government perspective on the proposed rule change. You are aware from our initial representations that we do not consider that it should proceed in relation to entities listed on both the NZSE and ASX. Our basic position is that, consistent with the goals of both the CER Agreement and MOU on Business Law Co-ordination, we should be looking for every opportunity to reduce the costs of a single firm having to incur the costs of having to comply with multiple laws in a single trans-Tasman market, so long as this does not damage market integrity.

We believe that Foreign Exempt Status and the NZSE’s equivalent recognition of ASX listed entities, is the best approach to reducing the costs of dual listing on the ASX and NZSE. I am firmly of the view that given the level of convergence between the New Zealand and Australian securities market laws means that any residual concerns that the ASX may have about market integrity are unfounded. The ASX has been briefed on the changes we have made or are contemplating. These include the introduction of the Takeovers Code on 1 July 2001, and the strengthening of New Zealand’s insider trading and market manipulation laws.

Of particular significance to the process of the convergence of exchange rules specifically is our decision to subject the NZSE rules to a Ministerial approval/disallowance process (this is contained in the Stock Exchange Restructuring Bill) and to introduce a continuous disclosure regime based on the Australian regime (this is contained in the Securities Markets and Institutions Bill, along with other measures that affect exchanges). This represents the government’s commitment to both strengthening the law, and co-ordinating our laws with those of Australia, where this contributes to deepening the single market to the benefit of our respective firms and investors. The Securities Markets and Institutions Bill has just been referred to a Parliamentary Select Committee. The ASX is more than welcome to make a submission to the Select Committee on this Bill.

I should also note that the NZSE has also proposed to the ASX two measures aimed at strengthening the linkages between the self-regulatory arms of the NZSE and ASX, which would also have the effect of reinforcing the convergence that is occurring in the substantive law. The first is to establish a joint working party to work towards greater harmonisation of the respective listing rules. The second is to explore the feasibility of appointing appropriately qualified Australian individuals to the NZSE’s Market Surveillance Panel with availability to particulate in divisions of the Panel appointed to deal with waiver, compliance or enforcement matters in respect of dual listed New Zealand companies.

However, in stating the New Zealand government’s firm preference that New Zealand entities continue to receive Foreign Exempt Status, I recognise that it is the ASX’s prerogative to change the rule. It is for this reason that I instructed my officials to explore opportunities to minimise compliance costs for dual listed entities in the event that the rule does change. I have attached, for your information, a copy of the formal submission NZ officials have made to the ASX. I am pleased that the ASX is prepared to consider the technical changes proposed in that submission. I believe that if substantive progress can be made in this area, this will go some way to addressing our concerns over the rule change, and reflect our historical relationship and commitment to develop the trans-Tasman capital market.

Finally, I would like to emphasise why the trans-Tasman relationship is different to other economic relationships, and why in this context we should be making a special effort to strengthen our ties. Firstly, we have a historically close relationship, with a complex and deep seated web of relationships at the personal, business and political levels, and we have geographical proximity. These are important drivers of economic integration, and are leading to what I describe as an increasing number of ‘trans-Tasman’ firms, which have made a commitment to a single trans-Tasman market, rather than separate national markets. These include Australian domiciled producers and investors. Secondly, The CER Agreement, and the many agreements that it has spawned, including the MOU on Business Law Co-ordination, reflect a mutual and formal commitment to a single market. This is in part intended to increase the size of the ‘domestic’ market for both Australian and New Zealand producers and consumers, but also importantly to increase the critical mass of what are, in effect, two relatively small countries on a global scale, and hence give us greater leverage in world markets. Thirdly, and of less significance in real terms but with important symbolic effect, New Zealand companies were already given preferential treatment relative to other Foreign Exempt Status listed entities, as they did not have to meet either the ‘profit’ test or ‘net tangible asset test’. Suggestions now that the ASX must treat New Zealand listed companies precisely the same as any other foreign listed entity is a backward step, and one that I personally would not like to see taken.

Again, I would like to thank the ASX for its courtesy in its dealing with my officials. I am optimistic of a positive outcome in relation to this issue, and I would be happy to provide you with any additional information or comment that you would find useful.

Yours sincerely

Hon Paul Swain
Minister of Commerce


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