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Annual Report 30 June 2000

IN THIS SECTION:

INTERNATIONAL LIAISON

PUBLIC UNDERSTANDING

ADMINISTRATION AND STAFFING

CONTENTS:

FINANCIAL REPORTING

We confer regularly with the Financial Reporting Standards Board of ICANZ about financial reporting matters.

During the year we made comments to ICANZ on four exposure drafts and on aspects of existing standards. We are pleased to report that work is underway by ICANZ to issue an exposure draft of a standard on summary financial statements. We think this will be useful for the prudent but non-expert investor.

SECURITIES AMENDMENT ACT 1988

Our work on reform of the Securities Amendment Act has focussed on the law relating to insider trading. Government is at present undertaking a review of insider trading law. We are helping. Government is particularly concerned about the detection of insider trading and enforcement. We have said that any review of the enforcement provisions of the law will need to be accompanied by a review of the circumstances in which liability arises.

We consider effective surveillance and detection under the existing rules of law to be an immediate priority. We also think that the rules of law in the Companies Act 1993 on the disclosure of directors' interests should be strengthened and more routinely enforced. We have made a recommendation to Government on this. We think more rigorous enforcement of these rules as amended will act as an additional disincentive to insider trading activity by directors.

The Business Law Reform Bill introduced this year contained three minor amendments to Part I of the Securities Amendment Act. We made submissions on this Bill.

We have conferred with the NZSE on our work on possible proposals to amend Part II of the Securities Amendment Act 1988. We have still to complete this work.

OTHER COMMENTS AND RECOMMENDATIONS

We have commented on matters of interest to the Commission at the invitation of various other organisations including the Ministry of Economic Development, the Law Commission, ICANZ and the Investment Savings and Insurance Association.

With the increasing influence of technology on securities markets, we have continued to review practices relating to electronic offerings and trading of securities. We are looking in particular at the challenges presented to regulators by the growth of advertising for securities on the internet. Our objectives are:

to understand the potential uses of this technology for securities markets,

to ensure that the law does not impose inappropriate impediments to the use of the technology,

to understand the opportunities for abuse of the technology by dishonest people and to endeavour to combat these.

We have had discussions with members of the managed funds industry. We have offered to set up a forum for consultation if difficult issues arise about the content of the law or its application to market practice.

INTERNATIONAL LIAISON

The Commission is an active member of the International Organisation of Securities Commissions (IOSCO). This comprises 165 regulatory and self-regulatory agencies including representatives of all significant securities jurisdictions.

The work of IOSCO is divided into five major subject areas:

multi-national disclosure of information including harmonisation of international accounting and audit standards,

regulation of secondary securities markets including examining the implications of the use of the internet and other electronic communication networks,

regulation of market intermediaries and their products,

enforcement and exchange of information in particular cross-border,

investment management.

In November 1998 IOSCO adopted its Statement of Objectives and Principles of Securities Regulation and established a committee responsible for implementing these. We are a member of this Implementation Committee and have taken a full part in its work. We promote an approach to implementing high regulatory standards on a global basis which takes account of the values and principles of small but highly reputable countries such as New Zealand.

As a result of our involvement in this work the Chairman, Euan Abernethy, was asked by the International Monetary Fund (IMF) and the World Bank to participate in a working group which was tasked to undertake a pilot assessment of the financial stability of a country in the European Union. The IOSCO Objectives and Principles were used as a benchmark for the securities markets assessment. The IMF and World Bank plan to assess their member countries for compliance with good regulatory principles covering banking, corporate governance, insurance, superannuation and securities markets.

In November 1998 IOSCO members adopted unanimously the "International Disclosure Standards for Cross-border Offerings and Initial Listings by Foreign Issuers". The standards provide a generally accepted disclosure code for non-financial information for use by issuers in cross-border offerings. They are intended to facilitate cross-border offerings by enhancing comparability of information and ensuring high regulatory standards.

On 16 May 2000 IOSCO resolved to recommend the use of 30 selected standards of the International Accounting Standards Committee (IASC) for cross-border listings and offerings by multi-national enterprises. This is a significant development in raising the quality of financial reporting world wide. IOSCO had worked for some time with the IASC on this core group of international financial reporting standards.

The Commission subscribes to IOSCO's 1986 Rio Declaration under which signatories are to give reciprocal assistance in gathering information related to market oversight and protection of investors against fraudulent securities transactions. The Commission is also party to memorandums of understanding on information sharing and related matters with the Australian Securities and Investments Commission, the United States Commodity Futures Trading Commission, the Hong Kong Securities and Futures Commission, the Chinese Taipei Securities Commission and the Papua New Guinea Securities Commission. The Commission has an exchange of letters with the United States Securities and Exchange Commission. We are discussing the terms of a memorandum of understanding with the United Kingdom Financial Services Authority. We confer regularly with a number of these organisations and many other regulators in the course of market inquiries.

New Zealand is a signatory to the IOSCO-sponsored Declaration on Cooperation and Supervision of International Futures Markets and Clearing Organisations. The Declaration reinforces understandings reached between international futures exchanges and clearing houses signed in Florida in 1996. These enable participating exchanges and clearing houses to share information relating to the financial resources and trading positions of people active in futures contracts. An important aim is to identify large exposures which may potentially have an adverse effect on markets.

A Joint Year 2000 Council was established in Basel under the auspices of the Bank for International Settlements. The Council set up an information sharing framework for dealing with Y2K issues affecting financial markets. Some 27 jurisdictions (including New Zealand) took part in this.

PUBLIC UNDERSTANDING

Visitor activity on our web site more than doubled again this year. The web site is becoming an increasingly effective means of communicating with the Commission's stakeholders and the general public. There are significant numbers of visitors to the site from the United States, Australia, the United Kingdom, Canada and Japan.

The number of people receiving the Commission quarterly newsletter, The Bulletin, also increased during the year. The Bulletin keeps people informed of relevant information on securities law and practice and the work of the Commission.

We provided speakers to industry conferences, including conferences on funds management and the raising of venture capital.

We used the news media to issue warnings to the public and to promote a better understanding of securities law.

We responded to a large number of requests for information both from within New Zealand and from overseas.

We are developing a project for greater contact with the regional communities. Our particular objective is to reinforce our warnings about the danger of committing savings to illegal investment schemes.

ADMINISTRATION AND STAFFING

YEAR 2000

We did not encounter any problems in the transition to the year 2000.

STAFF

We commissioned a review of our occupational health procedures and took corrective action where appropriate.

Two members of staff left during the year. Four full time staff were appointed and one part time employee became full time. We currently have 17 full time and one part time staff. One staff member attended the Australian Securities and Investments Commission's Summer School in Sydney. Various staff members attended professional development courses during the year.

SECURITY

The Government Communications Security Bureau carried out a risk analysis on our computer network. It found that "in general Securities Commission information has sufficient protection from attack or accident". It recommended measures to reduce some potential risks and these have been, or are being, implemented.

JOHN FARRELL CHIEF EXECUTIVE