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FMA Publishes NZX Obligations Annual Review

NZX made notable improvements to its regulatory arrangements and monitoring in 2020, according to the annual obligations review of New Zealand’s licensed stock exchange by the Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko.

However, as detailed in the FMA’s targeted technology review, published in January as part of the overall review for 2020, NZX failed to meet all of its obligations.

Each year the FMA is required to carry out a review and report on how well NZX is meeting the requirements for its market operator licence. The FMA pays particular focus on whether NZX is appropriately managing potential conflicts between its regulatory and commercial functions.

The FMA’s 2021 NZX Market Operator Obligations Review states that NZ RegCo, the new subsidiary established by NZX to deliver its regulatory model, was set up to operate with a high level of independence. The overall design is a notable improvement on prior arrangements providing for more robust conflict management and greater governance support for the regulatory function.

In May 2021, the FMA approved the NZX’s extensive action plan for its technology capability, following the targeted technology review. That review found the exchange failed to meet its licensed market operator obligations due to insufficient technological resources. The FMA did not carry out further testing on NZX’s technology resources in the annual review, as this will be covered by ongoing monitoring of NZX’s implementation of its action plan.

Sarah Vrede, FMA Director of Capital Markets, said: “NZX has recently addressed some of its technology capability issues and the further actions NZX has committed to will be important to demonstrate longer-term resilience. We will continue to closely monitor NZX’s progress.”

Overall, the annual review, released today, found NZ RegCo responded well to COVID-19 uncertainties and volatility without any apparent impact on the effectiveness of its monitoring function, which is essential to maintaining market integrity. This included handling a large number of market-monitoring software alerts arising from increased volatility and participation in markets, upgrading surveillance infrastructure and implementing new tools.

Other key findings of the review were:

  • NZ RegCo enhanced its monitoring tools and implemented new processes to ensure more comprehensive continuous disclosure investigations
  • A good level of collaboration between NZX and NZ RegCo on regulatory policy matters
  • Good conflict management between NZX and NZ RegCo over new listings, through suitable governance controls
  • The NZ Markets Disciplinary Tribunal and its Special Division acted with a high level of independence with thorough reviews of referrals

Ms Vrede added: “The establishment of NZ RegCo as a separate entity with its own board has created a greater degree of independence between the commercial and regulatory functions of NZX. The new arrangements also create more support for the regulatory function.”

Download 2021 Market Operator Obligations Review – NZX

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