OVERSIGHT REVIEW OF NZX 2007

POLICIES IN RESPECT OF CONTINUOUS DISCLOSURE

42. The Securities Markets Act 1988 requires public issuers to disclose material information to the market. Accordingly, NZX as a registered exchange is obliged to have rules for its listed issuers to meet this obligation. The NZX Listing Rules outline an issuer's obligation to provide timely disclosure of material information that is not generally available to the market. NZX enforces these Rules by investigating suspected rule breaches and exercising its remedies against issuers who fail to comply with the Rules.

Education and Compliance

43. NZX has taken a number of measures to improve the timing and quality of disclosures made by its listed issuers. NZX has taken measures targeted (i) to the market as a whole, (ii) to a particular sector of listed issuers and (iii) to particular issuers.
44. Through media initiatives to the market, NZX has encouraged issuers to comply with the continuous disclosure regime and has emphasized the benefits of being subject to such a regime.
45. NZX educates issuers at the time of their listing on the importance of the continuous disclosure regime by having new issuers meet with members of the NZX staff who deal with issuer disclosure. During these meetings issuers are introduced to the MAP system and are given educational disclosure materials and documents. NZX also regularly contacts the issuers in advance of the due date for filing periodic disclosures to ensure issuer compliance.
46. In addition to its overall educational initiatives, NZX responded to external market events. In response to the failure of a number of finance companies, NZX wrote in August 2007 to listed finance companies or listed parents of finance company subsidiaries, to confirm that these issuers were complying with their continuous disclosure obligations. NZX wrote again in April 2008 to such companies to confirm that these issuers were complying with their continuous disclosure obligations, to request operating metrics to ensure that the market was fully informed, and to provide a rationale where a company considered those metrics irrelevant.
47. Upon receipt of the issuer responses, NZX made market announcements detailing these responses and noted that the inquiries and responses were opportunities for the listed issuers to demonstrate transparency and help restore investor confidence in those sectors. NZX has advised that it will engage in on-going discussion with the listed finance companies in order to ensure that the market continues to be fully informed.
48. NZX focuses on compliance by particular issuers by reviewing the security price movements ahead of any material disclosure by an issuer and the circumstances of material information which may have entered the market before release by the issuer.

Investigations and Enforcement

49. The Commission is satisfied that NZX has a fair, consistent and effective approach in handling continuous disclosure matters from investigation through to resolution. There are dedicated NZX personnel who initially identify continuous disclosure issues, conduct preliminary investigations and then make referrals to the team which ultimately pursues the matters with the issuers.
50. The NZX teams involved conduct investigations, impose deadlines for issuer responses, and decide on resolutions based upon a case-by-case assessment of each individual matter. The various teams ultimately report to the same management.

Information Access

51. In assessing NZX's disclosure practices, the Commission also reviewed the availability of market information disseminated by NZX on its website and through its various other subscriber services.
52. In addition to providing securities quotations, market statistics, volume information, end-of-day indices data and corporate information on its website free of charge, NZX provides real-time headlines of market announcements made by issuers, third parties and NZX and, on a twenty-minute delay, price information and the full text of market announcements. While price information is actually not required to be disclosed under the securities laws or the NZX Listing Rules, we focussed our review on the accessibility of company announcements.
53. Announcement history is available and searchable on the website. Very often, there are attachments to these market announcements which can include the actual text of the market announcement provided by the issuer and supplemental material. For example with annual reports, the financial statements are provided as an attachment. These attachments are not readily available on the website, however, they are available on request from NZX free of charge. Users can email their request for an attachment to NZX staff, who will provide the attachment by email immediately.
54. NZX offers market information through various services for a fee. NZX has a range of customers which include brokers, analysts, financial data vendors, fund managers, law firms, media and academics.
55. NZX provides real-time price information and announcements to its fee paying subscribers.
56. NZX offers an information service which includes a function for searching corporate announcements. This service also provides the announcement attachments.
57. As stated above, price information is not required to be disclosed under the securities laws or the NZX Listing Rules. We note that the significant difference between the information that is available free of charge on the website and the information purchased by fee paying subscribers is that subscribers can purchase real-time price information and company announcements as well as price depth.
58. While we recognise that commercially NZX derives revenue from its fee based information services, we review the availability of market information on NZX's website as part of our review of NZX's market disclosure obligations.
59. Globally, there is considerable debate among stock exchanges as to the type of information and data which should be available free of charge to the public via the exchange websites and what information should be offered for a fee.
60. There is a view that to establish a fair and transparent securities market, all investors, whether retail, professional or institutional, should have equal access to market information in order to make informed investment decisions. One way to achieve this result would be to eliminate the disparity in the availability of market information by providing real-time company announcements on the website.
61. There is an opposing argument that retail investors obtain their market information differently to professional or institutional investors, such that retail investors seek advice from their professional brokers. Therefore, the public website available to retail investors would not have to provide the same market information as fee based subscriber services, which are widely used by professional and institutional investors.
62. The Commission notes that among stock exchanges throughout the world there is a mix of availability between real-time and delayed company announcements on websites. The Commission also notes that a number of major stock exchanges throughout the world offer delayed price information on their websites and that some exchanges charge fees for information access as listing fees to the issuers, rather than to subscribers of the information service. The Commission does not consider that it is inappropriate for NZX to charge fees for more timely access to information.
63. The Commission holds the view that the current process which requires the website user to make a request of NZX to obtain attachments to announcements, creates an unnecessary burden on the user. In order to gain the most comprehensive understanding of a company announcement, a user should have access to the whole of the announcement which includes any attachments. Thus, the Commission believes that attachments to announcements, particularly annual reports, should be disclosed on the NZX website without the need to make a request.
64. NZX has publicly announced that new features will be added to the website in the next several months.
65. The Commission notes that on 14 February 2008 NZX's website experienced outages at a time of extreme market volatility in international markets. The Commission is satisfied that NZX has undertaken changes to its website which have increased the website capacity to handle even such abnormally high internet traffic.
66. The Commission is satisfied that NZX has robust procedures for receiving issuer information and processing this information for market announcement within a rigorous deadline. These procedures involve dedicated personnel who receive information from issuers, determine if that information is complete, identify the type of information to be announced, determine whether a trading halt for the specific security involved is warranted, develop a descriptive announcement headline and prepare the information for release.