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Financial Markets Bill Needs to Provide Clearer Guidance

7 June 2012
For immediate release

Financial Markets Bill Needs to Provide Clearer Guidance, Infinz Tells Select Committee

Clearer guidelines are needed about the regulations that will govern the future preparation of documents seeking to raise money from investors, says the Institute of Finance Professionals New Zealand (INFINZ).

That was the key comment INFINZ made in its submission today (Thursday 7 June) to the Commerce Select Committee about the Financial Markets Conduct Bill (Bill). “As currently worded, the Bill provides insufficient and, at times, conflicting guidance on how the regulations are to be prepared,” INFINZ Executive Director Jim McElwain said in the submission.

“For example, the Bill anticipates that ‘material’ information would be split between a ‘Product Disclosure Statement’ (PDS) and documents placed on an on-line register - but there is no guidance as to how this should be done.” (The PDS and on-line register are intended to replace the current Investment Statement and Prospectus used by issuers to raise debt and equity from the investing public.)

The Bill also provides for the needs of retail investors to be served by the PDS with the on-line register established to meet the needs of the ‘sophisticated’ investor.

“It will be difficult for these documents to serve the needs of two masters,” says McElwain. “If there are allegations of ‘defective’ disclosure in the future, which set of documents should prevail?

“There is a real risk two full sets of offering documents would be prepared covering all material matters – the so-called ‘simplified’ document (PDS) for retail investors and a more comprehensive set placed on-line for the sophisticated investors. In our view, this would add substantially to the compliance costs borne by issuers and create confusion for investors.”

McElwain says INFINZ is supportive of the Bill’s goal of achieving “fair, efficient and transparent financial markets”. However, the unanticipated consequences of the Bill, as presently drafted, is that these objectives could well be frustrated.

“INFINZ’s key recommendations are, first, all offering documents be prepared for one audience only - either retail investors or, as we’d prefer, sophisticated investors. Second, a level of materiality should be established for the PDS so issuers can be confident they need only put into that statement those matters which have a ‘significant’ impact on investors’ decision-making, with lesser matters addressed in documents placed in the on-line register.”

INFINZ is the key industry body for capital markets professionals in New Zealand. It has a membership of about 700 drawn from across the capital markets and includes treasury professionals, investment analysts, fund managers, bankers, lawyers and students.


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