2 July, 2002

Improving Confidence in our Securities Markets:
Protecting the Rights of Small Investors

The Government’s programme of securities law reform will protect the rights of small investors and build confidence in New Zealand’s securities markets, said Commerce Minister Paul Swain today.

“Making sure that our securities markets can attract sufficient investment will be critical to achieving the Government’s goal of getting New Zealand back into the top half of the OECD,” he said. “If that is to happen small investors must have the confidence to invest their money in kiwi companies.

“Clearly the level of protection for small investors has not been good enough. The hands-off approach of previous governments has not delivered as effectively as it should.”

The securities law reform programme has three parts - The Takeovers Code, the Securities Markets and Institutions Bill and a fundamental review of securities trading laws, especially our insider trading laws.

The Takeovers Code was introduced last year. “It has already achieved its objectives of giving international and domestic investors greater confidence in our market and giving greater confidence to small and minority investors by providing them with fair and equal treatment and participation in takeovers,” said Mr Swain. “Industry feedback has been favourable and many who were originally opposed to the Code now support it. Perceptions of the New Zealand market in regard to takeovers have been greatly improved and shareholders now feel that they have greater rights in a takeover situation.”

The second part of the programme, the Securities Markets and Institutions Bill, is currently before the House, awaiting its second reading. The Bill aims to address concerns that aspects of our current securities law, particularly the prevention, detection and enforcement of insider trading, are not working properly, said Mr Swain.

The Bill moves New Zealand closer to the Australian model by implementing a continuous disclosure regime, placing obligations on directors and officers of companies to disclose securities dealings when they occur and setting up the Securities Commission as a civil enforcement body for insider trading and continuous disclosure.

“Consistency with Australia means that investors who understand and have confidence in the Australian regime will also have confidence in the New Zealand regime,” said Mr Swain. “The Australian system is consistent with international best practice and because of the increasing linkages between our two economies, it makes sense to have similar regimes.

“Suggestions that we should instead be following the US model do not recognise that the US is currently reviewing its system and looks set to adopting something similar to the Australian approach.”

The third part of the Government’s reform programme is currently in progress. Three discussion documents were released in May and represent a fundamental review of securities trading laws.

These documents consider a first principles review of insider trading law, a review of market manipulation law, which financial products and entities New Zealand securities trading law should apply to, what improvements could be made to civil and administrative remedies and whether criminal and civil penalties regimes should be introduced.

The three-part programme protects the rights of small investors and assures international investors that the New Zealand market is a market of integrity and in line with international best practice, said Mr Swain. “Protections and rights for investors have been undermined in the past securities law environment and we are determined to remedy the situation.”

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