## 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation

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### Assessment scope and methodology
- IMF FSAP mission to New Zealand from October 30–November 18, 2003.
- Assessment conducted by Janet Holmes (Ontario Securities Commission).
- Assessment drew on:
  - A self-assessment prepared principally by staff of the Securities Commission (SC) and Ministry of Economic Development (MED), with input from other authorities and stock exchange operators.
  - A review of applicable laws, guidance and procedures.
  - A review of certain publicly available data concerning the authorities and SROs.
  - Interviews with staff of the authorities, stock exchange operators, the Accounting Standards Review Board (ASRB) and Institute of Chartered Accountants of New Zealand (ICANZ), and representatives of certain market participants (including issuers, market intermediaries, investors, legal advisers and a new market operator).
  - A review of documentation provided by various interviewees.
- Self-assessment prepared prior to IOSCO’s endorsement and publication of the Methodology; draft available to some staff; final Methodology used as a guide.

### Institutional and market structure
- Market size and ownership:
  - Market capitalization of about 44 percent of GDP.
  - Ownership: mostly in the hands of offshore investors and domestic institutional investors; about one-fourth held directly by households.
- Market participants and intermediaries:
  - Intermediaries include sharebrokers, futures dealers, investment advisers, and managers of collective investment schemes (CIS), including contributory mortgage brokers.

### Recent market developments
- NZX developments:
  - NZX demutualized in late 2002, self-listed in 2003 and launched a new, regulated market targeted at developing and nontraditional enterprises.
- New market entrants:
  - A group announced intention to establish a web-based market, Unlisted, without seeking recognition as an exchange.
- Cross-border arrangements:
  - SFE Corporation (SFE) will transfer trading in NZFOE products to Australia in 2004 and has arranged with NZX for trading on SFE of products based on NZX-listed securities.

### Preconditions for effective securities regulation
- Listed preconditions: sound and sustainable macro-economic policies conducive to investment and savings; enforceable property rights; a supportive political environment free from corruption; well-developed infrastructure (legal and accounting systems, clearing and settlement systems and payment systems); an effective judicial system; corporate governance mechanisms; an insolvency regime; absence of unnecessary barriers to entry and exit from markets and products; market openness to the widest range of participants that meet predefined entry criteria; and regulators’ awareness of the impact of new policies.
- Assessment: "These preconditions appear to be met in New Zealand."

### Principle-by-principle overview
- Assessment tool: Table 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation.
- Structure covered: Principles Relating to the Regulator; Principles of Self-Regulation; Principles for the Enforcement of Securities Regulation; Principles for Cooperation in Regulation; Principles for Issuers; Principles for Collective Investment Schemes.
- Selected principle assessments (examples from supplied content):
  - Principle 1 — Clear responsibilities: Assessment: Fully Implemented.
  - Principle 2 — Independence and accountability: Assessment: Broadly Implemented (RC not operationally independent).
  - Principle 3 — Powers, resources and capacity: Assessment: Partly Implemented.
  - Principle 4 — Clear and consistent regulatory processes: Assessment: Fully Implemented.
  - Principle 5 — Staff professional standards and confidentiality: Assessment: Fully Implemented.
  - Principle 6 — Use of SROs: Assessment: Fully Implemented.
  - Principle 7 — Oversight of SROs: Assessment: Partly Implemented.
  - Principle 8 — Inspection, investigation and surveillance powers: Assessment: Broadly Implemented.
  - Principle 9 — Comprehensive enforcement powers: Assessment: Broadly Implemented.
  - Principle 10 — Effective use of enforcement powers and compliance program: Assessment: Partly Implemented.
  - Principles 11–13 (Cooperation): Assessments: Fully Implemented, Fully Implemented, Broadly Implemented respectively.
  - Principle 14 — Full, accurate and timely disclosure: Assessment: Broadly Implemented.
  - Principle 15 — Fair and equitable treatment of holders: Assessment: Broadly Implemented.
  - Principle 16 — Accounting and auditing standards: Assessment: Broadly Implemented.
  - Principles 17–20 (CIS): Principle 17 — Not Implemented; Principle 18 — Partly Implemented; Principle 19 — Broadly Implemented; Principle 20 — Not Implemented.

### Key findings and gaps — regulator, SROs and enforcement
- Regulator and institutional capacity:
  - SC staff increased from 18 in 2001 to 30 in 2003.
  - RC has a staff of six full-time employees reviewing registration documents; RC also has approximately twelve people participating in inquiries, inspections and enforcement matters.
  - Takeover Panel (TP): two new members appointed in the last year; shortage of qualified senior professionals in securities and takeover matters.
  - Identified gaps: no assessment of operational capacity/fitness of securities exchanges as part of registration and ongoing supervision; several intermediaries subject to little or no ongoing oversight; reliance on trustees/private statutory supervisors for several CIS categories; SC lacks certain administrative powers (expected securities trading law reforms).
- Enforcement powers and limits:
  - SC powers (post-2002 amendments) include suspend/cancel investment statements or registration of prospectuses; prohibit distribution of advertisements; require public issuers to disclose information; give directions to registered exchanges regarding trading; require information from registered exchanges; seek Court orders for civil penalties for insider trading; enforce continuous disclosure laws and seek pecuniary penalties; recommend statutory management; accept enforceable undertakings and seek enforcement in Court.
  - Limitations: SC cannot impose administrative penalties; cannot apply to court for civil remedy regarding misleading or inadequate disclosure in offer documents or advertisements (government indicated legislation in 2004 to provide these powers).
  - NZX sanctions: impose a fine of up to $NZ 250,000 on an NZX Firm; censure, suspend or revoke designation; Market Surveillance Panel can censure, suspend, cancel quotation or listing.

### Market conduct, surveillance and proposed criminal/civil penalties
- Market surveillance systems:
  - NZX’s SMART and FASTER systems enable audit of execution and trading.
  - NZFOE’s SYCOM and Austraclear enable similar audits.
- Legal framework on manipulation/insider trading:
  - No specific statutory provisions expressly prohibiting manipulative/unfair practices in securities trading law; some forms addressed under general fraud or Fair Trading Act 1986.
  - Insider trading not a criminal offence; civil liability exists with limitations.
  - NZX Code of Practice Rule 4.7 prohibits front-running; NZX Business Rules prohibit manipulative practices.
- Government reform proposals (to be legislated in 2004 per supplied content):
  - (1) eliminate requirement to prove inside information acquired through a relationship with an insider;
  - (2) introduce prohibitions on disclosure- and trade-based market manipulation;
  - (3) introduce criminal penalties regime for insider trading, tipping and market manipulation; and
  - (4) introduce a civil penalties regime, enforceable by the SC, with civil burden of proof for insider trading, tipping, market manipulation, and misleading and deceptive statements under the Securities Act.
- Proposed penalty magnitudes (Minister’s recommendations):
  - Criminal penalties of up to 5 years’ imprisonment and a fine of up to $NZ 100,000 for an individual and $NZ 300,000 for a corporation.
  - Civil penalties of up to the greater of $NZ 1,000,000 and three times the gain made or loss avoided.

### Issuers, disclosure and accounting
- Offer and periodic disclosure:
  - Securities Act prescribes disclosure for investment statements, prospectuses and advertisements; prescribed requirements for registered prospectuses; investment statement must be provided in advance of subscription.
  - Companies Act requires annual report; Financial Reporting Act requires directors to prepare annual financial statements within five months of year end, audited, and registered with RC within 20 working days after expiry of five month period.
  - NZX periodic deadlines: NZSX Companies deadline three months after period end; NZAX Companies deadline four months after period end. Preliminary announcements required no later than 60 days after period end.
  - Continuous disclosure: recent amendments require issuers whose shares are traded on a recognized securities exchange to disclose immediately material information in accordance with exchange listing rules unless already generally available.
- RC workload and resources:
  - RC review workload: approximately 700 prospectuses registered in year ended June 30, 2003 and 860 in year ended June 30, 2002.
  - Approximately 6,500 sets of annual financial statements filed in each of the years ended June 30, 2003 and June 30, 2002.
  - RC staffing: six full-time staff review substance of prospectuses and financial statements; no formal risk-based review system.
  - NZX retains two outside experts to review all offer documents for initial public offerings and has five staff lawyers reviewing offer documents.
- Recommendations (excerpted):
  - devote more resources to RC review of disclosure documents;
  - consider coordinated review processes among RC, NZX and SC;
  - amend reporting timeframes for unlisted issuers (e.g., file audited annual financial statements within four months and preliminary announcement within 60 days);
  - require NZX-listed companies to notify NZX in confidence when relying on nondisclosure exemptions;
  - require NZX to make material information news releases public at same time as subscribers.

### Collective Investment Schemes (CIS) — structure, disclosure and supervision
- Types of CIS identified:
  - unit trusts; superannuation schemes; contributory mortgages; life insurance policies; group investment schemes; participatory schemes.
- Disclosure and reporting:
  - Mandatory disclosure elements for public offers of CIS units include: (1) legal constitution; (2) investors’ rights; (3) asset valuation methodology; (4) procedures for purchase, redemption and pricing; (5) relevant audited financial information; (6) information about the custodian, if any; (7) investment policies; (8) risk disclosure; (9) appointment of any external administrators, investment advisers or managers with significant and independent roles; and (10) fees and expenses.
  - Annual audited financial statements prepared in accordance with and registered under the FRA must be prepared for all CIS; managers of unit trusts must send to unitholders each year an audited statement of accounts.
  - Implementation concern: unitholders may not receive annual reports in a timely manner because reports need not be made publicly available for almost six months after the end of the financial year (only listed CIS disclose preliminary results earlier).
- Supervisory and structural gaps:
  - No detailed prescribed eligibility criteria for CIS operators and no program for ongoing regulatory oversight of CIS operators.
  - Reliance on supervision by trustees exists, but that alone may be insufficient.
  - Lack of regulatory assurance that standards relating to legal form and structure of all CIS are enforced; inadequate notification to regulator of proposed changes to investors’ rights; lack of segregation of assets for participatory schemes.
  - Asset valuation and NAV requirements exist for some CIS, but not all CIS are required to have NAV calculations conducted on a regular basis in accordance with NZ GAAP.
  - No prescriptive regulatory requirements addressing the circumstances in which redemptions can be suspended; no prescriptive requirements with respect to pricing errors.
- Recommended reforms for CIS (selected):
  - appointment of a trustee or statutory supervisor to oversee contributory mortgage brokers (or provide for direct regulatory oversight);
  - establish high level minimum entry and ongoing standards concerning CIS operators' honesty and integrity, competence, financial capacity, internal controls, powers and duties;
  - general conflict of interest standards for CIS operators and their trustees or supervisors;
  - minimum standards for CIS operators to provide periodic and timely reports to trustees or statutory supervisors (or to the appropriate regulator), including immediate reporting of material contraventions;
  - minimum requirements for trustees or statutory supervisors to conduct periodic inspections of CIS operators and timely reporting of material contraventions to the SC;
  - suspension or prohibition of any CIS operator by the SC; issuance of directions by the SC to a trustee or statutory supervisor not fulfilling responsibilities and, in serious cases, removal and replacement with the SC’s appointee.
  - For Principle 18: review a sample of trust deeds and deeds of participation to determine significant concerns and, if needed, specify minimum standards.
  - For Principle 20: consider adopting consistent, minimum regulatory standards regarding asset valuation, pricing and redemption.

### Market intermediaries (Principles 21–24) — entry, prudential standards and failure procedures
- Categories of intermediaries: (1) sharebrokers; (2) futures dealers; (3) investment advisers and brokers; and (4) contributory mortgage brokers.
- Entry standards and licensing (Principle 21):
  - Sharebrokers: individuals require a District Court license; capital requirements are not imposed via District Court licensing; no central register of licensees exists.
  - NZX Firms (37 NZX Firms) are subject to comprehensive admission criteria including: (1) minimum capital requirements; (2) fit and proper standards; (3) standards for internal controls, risk management and supervisory systems; and (4) agreement to be bound by NZX Business Rules.
  - Futures dealers require SC authorization guided by criteria such as experience, financial stability and capital adequacy, integrity and admission to an authorized futures exchange.
  - Investment advisers and brokers (other than sharebrokers) are not licensed; they are subject to a disclosure regime with limited enforceability and no dedicated regulator for enforcement.
  - Assessment status: Partly Implemented.
- Capital and prudential requirements (Principle 22):
  - NZX Firms and many futures dealers subject to initial and ongoing capital and prudential requirements; many other intermediaries (contributory mortgage brokers, some investment advisers, non-NZX sharebrokers) are not.
- Internal organization and conduct standards (Principle 23):
  - NZX’s Conduct Rules specify detailed standards (recordkeeping, settlement/payment systems, ethics, client funds trust accounts, compliance officers, written client contracts, etc.).
  - Other intermediaries do not face comprehensive standards or oversight.
- Failure procedures and crisis management (Principle 24):
  - Existing measures:
    - NZX: early warning notices for changes affecting Liquid Capital; discretion to intervene; Fidelity Guarantee Fund (capped at $NZ 500,000 total liability; maximum amount payable to any claimant $NZ 20,000 or greater as NZX Board determines); FASTER System supports settlement and client asset tracing; NZX developing crisis management scenarios and a policy.
    - NZFOE: Business Conduct Committee powers, fidelity fund for compensation.
    - SC: powers to intervene in contributory mortgage brokers and impose prohibition orders or replace directors/secretary of nominee companies; Corporations (Investigation and Management) Act permits RC to give advice/assistance, issue binding directions and enable appointment of a statutory manager; eight finance and property management companies were put into statutory management in June 2003.
  - Gaps:
    - No comprehensive, formalized crisis management plan exists across securities regulators and SROs to deal with intermediary failure.
  - Recommended crisis plan elements:
    - (1) build on experience and develop scenarios;
    - (2) identify legal and operational issues and resolution approaches;
    - (3) specify trigger points and timetables;
    - (4) include contact details for key domestic and overseas regulators.
- Assessment status across Principles 21–24: Partly Implemented.

### Secondary market structures and market integrity (Principles 25–29)
- Authorization and oversight of trading systems/exchanges (Principle 25):
  - Markets may hold themselves out as securities exchanges only with Minister recognition; futures exchanges require SC authorization.
  - Conduct rules of registered securities exchanges must be approved by the Minister on the SC’s advice; regime does not expressly require assessment of operational competence or fitness as part of registration.
  - Assessment status: Partly Implemented.
- Ongoing supervision of exchanges (Principle 26):
  - SC has powers to inquire and issue directions; cannot directly require a registered securities exchange to amend its conduct rules but can recommend Minister action; no comprehensive program of ongoing regulatory oversight.
  - Assessment status: Partly Implemented.
- Transparency of trading (Principle 27):
  - NZX’s FASTER System requires all on-market transactions between NZX Firms to be completed via FASTER and provides real-time pre-trade data and real-time trade publication; subscribers choose real-time or delayed feeds.
  - NZFOE uses SYCOM with immediate entry/display of bids and offers; end-of-day price procedures disclosed via SYCOM.
  - Assessment status: Fully Implemented.
- Detection and deterrence of manipulation and unfair trading (Principle 28):
  - Detection tools: NZX uses SMARTS to monitor trading, create alerts and support inquiries/referrals to SC.
  - Legal gaps: absence of express statutory prohibitions on manipulative/unfair practices in securities trading law; insider trading not criminal; front-running not expressly prohibited in securities legislation (but restricted by NZX rules).
  - Government reform proposals (see above) to address gaps.
  - Assessment status: Partly Implemented.
- Management of large exposures, default risk and market disruption (Principle 29):
  - NZX monitors Liquid Capital and large positions daily; can instruct firms to reduce exposure or increase margins.
  - FASTER Registry holds size and beneficial ownership information; Delivery versus Payment eliminates principal risk in settlement.
  - NZX Regulation 3 provides for full trust accounting and recovery procedures if a firm defaults.
  - Fidelity Guarantee Fund caps: total liability $NZ 500,000; maximum per-claimant $NZ 20,000 or greater as NZX Board may determine.
  - Average trade statistics: average trade size exceeds $40,000; excluding trades exceeding $NZ 100,000 (which account for 20 percent of all trades), the average trade size drops to $NZ 9,000.
  - Assessment status: Fully Implemented.
- Recommended regulatory amendments:
  - Amend the Securities Markets Act to require assessment of operational competence and fitness of market operators as part of registration.
  - Amend securities legislation to authorize the SC (or Minister on SC advice) to direct a recognized securities exchange to amend conduct rules on public interest grounds.

### Consolidated recommended actions (selected from Table 3)
- Improve public understanding and regulator–industry education (Principle 4).
- Develop and publish a Code of Conduct for SC and TP staff, with monitoring (Principle 5).
- Amend securities legislation to set comprehensive, high-level principles for regulated securities and futures exchanges and require operational competence assessments; formalize oversight plans and expand SC powers to direct conduct-rule amendments (Principles 7, 8, 25, 26).
- Implement reforms to remedies and penalties and strengthen enforcement resources (Principles 9 and 10).
- Devote more resources to risk-based review of disclosure documents and improve timeliness of financial reporting by unlisted public issuers (Principle 14).
- Amend company and securities legislation to improve shareholder remedies and centralized filing of substantial securityholder/director/officer transaction notices (Principle 15).
- Ensure oversight of audit standard interpretations and immediate disclosure requirements regarding external auditors (Principle 16).
- Amend securities legislation to strengthen oversight of CIS operators and trustees/statutory supervisors, set minimum entry and ongoing standards and reporting/inspection duties, and empower the SC with suspension/prohibition and replacement authority (Principles 17–20).
- Enact a more comprehensive regulatory oversight regime for market intermediaries (licensing or equivalent periodic reporting and risk-based oversight) and develop a crisis management plan for intermediary failure (Principles 21–24).
- Amend securities legislation to specify high-level standards for exchange trading systems: transparency, detection/deterrence of market manipulation and proper management of large exposures/default risk/market disruption (Principles 27–29).
- Implement the government’s proposed prohibitions and enhanced penalties for market manipulation and insider trading as soon as possible (Principle 28).

### Authorities' response and follow-up
- Authorities consider the FSAP findings and recommendations helpful and note that, in many areas, work is already under way.
- Authorities endorse forthcoming law reforms relating to comprehensive prohibitions on market manipulation, insider trading and enhanced penalties and enforcement powers.
- Authorities will consider the technical recommendations and suggestions regarding oversight of market intermediaries and CIS in proposed reviews of relevant legislation.
- On exchange rules and standards: authorities consider the broad public interest test in current legislation preferable to a prescriptive approach but note the recommendation to specify standards for regulated exchanges.
- Securities Commission actions:
  - The Securities Commission has decided to develop a formal oversight plan for regulated exchanges in the year of the assessment and has informed NZX.
  - It is most likely that details of this plan, once settled, will be published.
  - The oversight plan will cover some matters identified by FSAP as appropriate “ongoing standards” for regulated exchanges and the Commission expects to report on its oversight actions.

*Source: _cr04417 - IMF staff assessment as contained in the supplied chapter/section text.*

### 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities

### 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation

### Assessment scope and methodology
- The New Zealand securities regulatory system was assessed as part of the IMF FSAP mission to New Zealand from October 30–November 18, 2003.
- The assessment was conducted by Janet Holmes (Ontario Securities Commission).
- The assessment drew on:
  - A self-assessment prepared principally by staff of the Securities Commission (SC) and Ministry of Economic Development (MED), with input from other authorities and stock exchange operators.
  - A review of applicable laws, guidance and procedures.
  - A review of certain publicly available data concerning the authorities and SROs.
  - Interviews with staff of the authorities, stock exchange operators, the Accounting Standards Review Board (ASRB) and Institute of Chartered Accountants of New Zealand (ICANZ), and representatives of certain market participants (including issuers, market intermediaries, investors, legal advisers and a new market operator).
  - A review of documentation provided by various interviewees.
- The self-assessment was prepared prior to IOSCO’s endorsement and publication of the Methodology for Assessing Implementation of the IOSCO Objectives and Principles of Securities Regulation (Methodology).
  - A draft of the Methodology was available to some staff, but not all contributors had an opportunity to consider the Methodology.
  - The assessment was prepared using the final version of the Methodology as a guide.

### Institutional and macroprudential setting; market structure
- Market size and ownership:
  - New Zealand equity markets are comparatively small with market capitalization of about 44 percent of GDP.
  - Ownership of New Zealand-listed equities: mostly in the hands of offshore investors and domestic institutional investors, with only about one-fourth held directly by households.
- Market participants and intermediaries:
  - Securities market intermediaries include sharebrokers, futures dealers, investment advisers, and managers of collective investment schemes (CIS), including contributory mortgage brokers.

### Recent market developments and structural change
- NZX developments:
  - NZX, the only regulated securities exchange, demutualized in late 2002, self-listed in 2003 and recently launched a new, regulated market targeted at developing and nontraditional enterprises.
- New market entrants and plans:
  - Another group recently announced its intention to establish a new web-based market, Unlisted, without seeking recognition as an exchange.
- Cross-border arrangements and product migration:
  - SFE Corporation (SFE), the parent corporation of New Zealand Futures and Options Exchange (NZFOE), will transfer trading in NZFOE products to Australia in 2004 and has arranged with NZX for the trading on SFE of products based on NZX-listed securities.

*Source: _cr04417 - 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation.*

### 5.      Preconditions for effective securities regulation include sound and sustainable macro-

### _cr04417 - 5.      Preconditions for effective securities regulation include sound and sustainable macro-

### Preconditions for effective securities regulation
- Preconditions listed: sound and sustainable macro-economic policies conducive to investment and savings; enforceable property rights; a supportive political environment free from corruption; well-developed infrastructure (legal and accounting systems, clearing and settlement systems and payment systems); an effective judicial system; corporate governance mechanisms; an insolvency regime; absence of unnecessary barriers to entry and exit from markets and products; market openness to the widest range of participants that meet predefined entry criteria; and regulators’ awareness of the impact of new policies.  
- Assessment: "These preconditions appear to be met in New Zealand."

### Principle-by-Principle assessment — overview
- Assessment tool: Table 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation.
- Structure: Principles Relating to the Regulator; Principles of Self-Regulation; Principles for the Enforcement of Securities Regulation; Principles for Cooperation in Regulation; Principles for Issuers; Principles for Collective Investment Schemes.

### Principles Relating to the Regulator (selected findings)
- Principle 1 — Clear responsibilities
  - Principal statutory securities regulators: the SC, Takeover Panel (TP) and Registrar of Companies (RC). MED plays a significant policy role. NZX and NZFOE play important SRO roles.
  - SC issues reasons for material decisions; SC, TP publish Annual Reports and website content.  
  - Assessment: Fully Implemented.
- Principle 2 — Independence and accountability
  - Independence: SC and TP constituted as independent statutory corporations; RC is a public servant and not operationally independent.
  - Funding: SC and TP funded through service-related fees and annual Parliamentary appropriation; RC fees turned over to the Consolidated Revenue Fund and funded via Parliamentary appropriation.
  - Protections: SC and TP members and staff protected from liability unless they act in bad faith.
  - Accountability mechanisms: annual reports; audits under GAAP; Output Agreements and quarterly reporting; Statement of Intent under Public Finance Act; judicial review and appeal rights; publication of reasons for decisions; Bill of Rights Act and Human Rights Act compliance.
  - Assessment: Broadly Implemented (RC not operationally independent).
- Principle 3 — Powers, resources and capacity
  - Identified gaps: no assessment of operational capacity/fitness of securities exchanges as part of registration and ongoing supervision; several market intermediaries subject to little or no ongoing oversight; reliance on trustees/private statutory supervisors for several CIS categories; SC lacks certain administrative powers to enforce some securities law provisions (proposed securities trading law reforms expected to enhance powers).
  - Staffing and resources:
    - SC staff increased from 18 in 2001 to 30 in 2003.
    - RC has a staff of six full-time employees responsible for reviewing registration documents; RC also has approximately twelve people who participate in inquiries, inspections and enforcement matters.
    - TP: two new members appointed in the last year; shortage of qualified senior professionals in securities and takeover matters.
  - Assessment: Partly Implemented.
- Principle 4 — Clear and consistent regulatory processes
  - Procedures set out in legislation; SC, TP and MED consult publicly through discussion papers; SC and TP disclose policies; SC has internal procedures; TP and RC have procedures manuals/checklists.
  - Investor education: SC received funding in May 2003 for two public education projects targeted at vulnerable investors.
  - Assessment: Fully Implemented.
- Principle 5 — Staff professional standards and confidentiality
  - SC and TP expect high standards but no comprehensive written Code of Conduct; reliance on statutory/common law standards and professional Codes of Conduct.
  - No active monitoring of staff disclosures of securities transactions; recommendation to develop written Code of Conduct and monitoring if staff numbers grow.
  - Assessment: Fully Implemented.

### Principles of Self-Regulation (selected findings)
- Principle 6 — Use of SROs
  - NZX meets SRO definition: supervises NZX Companies, NZX Firms and NZX Brokers, and oversees trading activities. NZFOE meets SRO definition for futures dealers.
  - Assessment: Fully Implemented.
- Principle 7 — Oversight of SROs
  - Authorization: legislation provides for registration of securities exchanges and authorization of futures exchanges; conduct rules must be approved by Governor General on Minister’s advice (SC consulted).
  - Gaps: initial assessment does not expressly require operator to demonstrate fitness or operational capability to carry out SRO functions.
  - Ongoing oversight: statutory powers for SC to request information, direct short-term suspensions (up to 21 days) and apply to court to enforce directions; SC cannot require an exchange to change its conduct rules unilaterally.
  - Professional standards and conflicts: NZX conduct rules and NZFOE rules include confidentiality, procedural fairness and conflict avoidance provisions; NZX Special Division manages disciplinary powers in relation to NZX as an NZX Company; role and independence of Special Division is under review.
  - Assessment: Partly Implemented.
  - Recommendations: consider formalizing an oversight plan; amend securities legislation to authorize SC to direct exchanges to amend conduct rules on public interest grounds; NZX should adopt broader definition of “independence” for Special Division members or transfer disciplinary functions.

### Principles for the Enforcement of Securities Regulation (selected findings)
- Principle 8 — Inspection, investigation and surveillance powers
  - SC, TP and NZX have broad inspection, investigation and surveillance powers; can act without notice in some circumstances; SC can summon witnesses, require documents, appoint inspectors.
  - Financial Transactions Reporting Act requires financial institutions to retain transaction records and implement anti-money laundering measures.
  - NZX and NZFOE require complete and correct records, audited controls.
  - Assessment: Broadly Implemented (SC cannot require registered exchange to change conduct rules).
- Principle 9 — Comprehensive enforcement powers
  - SC powers (post-2002 amendments): suspend/cancel investment statements or registration of prospectuses; prohibit distribution of advertisements; require public issuers to disclose information or publish corrective statements; give directions to registered exchanges regarding trading; require information from registered exchanges; seek Court orders for civil penalties for insider trading; enforce continuous disclosure laws and seek pecuniary penalties; recommend statutory management; accept enforceable undertakings and seek enforcement in Court.
  - Limitations: SC cannot impose administrative penalties; cannot apply to court for civil remedy in respect of misleading or inadequate disclosure in offer documents or advertisements (government indicated legislation in 2004 to provide these powers).
  - TP powers: short-term restraining orders; apply to court for compliance, compensation, pecuniary penalties; Takeovers Act provides significant pecuniary penalties.
  - RC powers: refuse to register prospectus that is false or misleading; prosecute offences relating to issues and issuers; apply to court to disqualify a director for up to 10 years; declare corporation “at risk” under Corporations (Investigation and Management) Act 1989 with SC consent.
  - NZX sanctions: impose a fine of up to $NZ 250,000 on an NZX Firm; censure, suspend or revoke designation as an NZX Firm; Market Surveillance Panel can censure, suspend, cancel quotation or listing.
  - Private remedies: shareholders and former shareholders can apply to court in certain Takeovers Code contexts; shareholders can sue NZX Companies for compensation arising out of breach of NZX Listing Rules.
  - Assessment: Broadly Implemented.
- Principle 10 — Effective use of enforcement powers and compliance program
  - Regulators have systems to receive and respond to investor complaints; no complaint backlogs reported.
  - Routine inspections: RC reviews all documents relating to offers of securities; NZX reviews listing documents and commenced comprehensive on-site inspections for NZX Firms.
  - Market surveillance systems: NZX’s SMART and FASTER systems enable audit of execution and trading; NZFOE’s SYCOM and Austraclear enable similar audits.
  - Gaps affecting enforcement effectiveness:
    - Stockbrokers licensed by District Court may choose not to become designated NZX Firms or NZX Brokers; licensing criteria minimal and no ongoing supervision; regulators do not know how many licensed stockbrokers exist outside NZX oversight.
    - No ongoing regulatory oversight of certain CIS operators; reliance on unit trustees or private statutory supervisors who may have broad discretion when to intervene.
    - Investment advisers not licensed or subject to ongoing regulatory supervision (government to introduce legislation in 2004 to strengthen disclosure/enforcement).
    - Limited information about “Code Companies” not listed on NZX complicates TP oversight.
  - Assessment: Partly Implemented.

### Principles for Cooperation in Regulation (selected findings)
- Principle 11 — Authority to share public and non-public information
  - SC can share information with domestic and overseas regulators; TP can share information with SC; NZX and NZFOE required to share information with SC.
  - Official Information Act supports voluntary sharing.
  - SC and TP can provide information to overseas regulators subject to conditions (ministerial approval for certain actions; written undertakings required to prevent use in criminal proceedings).
  - SC accepted as a signatory to the IOSCO MMOU in October 2003; SC intends to seek class approval for all signatories.
  - Assessment: Fully Implemented.
- Principle 12 — Established information sharing mechanisms
  - SC has bilateral MOUs with TP, SFO and NZX; NZFOE provides written undertaking; Financial Regulators Coordination Group meets approximately four times a year and is developing a multilateral MOU.
  - SC has formal MOUs with overseas regulators; SC is signatory to IOSCO MMOU and IOSCO’s 1986 Rio Declaration.
  - SC and TP can prohibit publication of information obtained in proceedings and can hold private meetings where permitted.
  - Assessment: Fully Implemented.
- Principle 13 — Assistance to foreign regulators
  - SC able to offer effective and timely assistance to foreign regulators; IOSCO MMOU screening verified capability.
  - Gaps in domestic oversight (e.g., minimal licensing criteria and no ongoing supervision for non-NZX sharebrokers) may hamper detection of cross-border illegal conduct.
  - Assessment: Broadly Implemented.

### Principles for Issuers (selected findings)
- Principle 14 — Full, accurate and timely disclosure
  - Offer disclosure: Securities Act prescribes disclosure for investment statements, prospectuses and advertisements; prescribed requirements for registered prospectuses; investment statement must be provided in advance of subscription.
  - NZX requirements: “Offering Document” must contain Securities Act information; NZAX issuers may use a single “Disclosure Document” registered as a prospectus.
  - Periodic/timely disclosure: Companies Act requires annual report; Financial Reporting Act requires directors to prepare annual financial statements within five months of year end, audited, and registered with RC within 20 working days after expiry of five month period.
  - NZX periodic deadlines: NZSX Companies deadline three months after period end; NZAX Companies deadline four months after period end. Preliminary announcements required no later than 60 days after period end.
  - Continuous disclosure: recent amendments require issuers whose shares are traded on a recognized securities exchange to disclose immediately material information in accordance with exchange listing rules unless already generally available.
  - Concerns and operational details:
    - NZX material change news releases made public approximately 20 minutes after availability to subscribers.
    - RC review workload: approximately 700 prospectuses registered in year ended June 30, 2003 and 860 in year ended June 30, 2002.
    - Approximately 6,500 sets of annual financial statements filed in each of the years ended June 30, 2003 and June 30, 2002.
    - RC staffing: six full-time staff review substance of prospectuses and financial statements; no formal risk-based review system.
    - NZX retains two outside experts to review all offer documents for initial public offerings and has five staff lawyers reviewing offer documents.
  - Assessment: Broadly Implemented.
  - Recommendations: devote more resources to RC review of disclosure documents; consider coordinated review processes among RC, NZX and SC; amend reporting timeframes for unlisted issuers (e.g., file audited annual financial statements within four months and preliminary announcement within 60 days); require NZX-listed companies to notify NZX in confidence when relying on nondisclosure exemptions; require NZX to make material information news releases public at same time as subscribers.
- Principle 15 — Fair and equitable treatment of holders
  - Companies Act defines fundamental rights; NZX Listing Rules impose protections (constitution provisions, restrictions on share issuances, share buyback regulation, independent valuation and minority shareholder approval for related party transactions, and a “comply or explain” corporate governance code).
  - Takeovers Code applies to “Code Companies” defined as companies that are listed, were listed in past 12 months, or have 50 or more shareholders and $NZ 20 million or more of assets; prevents acquisition of 20 percent or more of voting rights except as prescribed by Code.
  - Disclosure of interests: Securities Markets Act requires persons acquiring 5 percent or more of securities to disclose immediately; further disclosures required for changes of 1 percent or more.
  - New disclosures expected in 2004: directors and officers to disclose interests and transactions within five days; public issuers to maintain file of notices; NZX Listed Companies to provide copies to NZX, which will make notices publicly available.
  - Penalties and reforms: criminal offence for nondisclosure; proposed 2004 reforms to introduce civil penalty of up to $NZ 1,000,000 for contravention.
  - Assessment: Broadly Implemented.
  - Recommendation: require public issuers to file substantial securityholder notices and directors’/officers’ interest notices in a central, public electronic register to facilitate historical record and regulatory monitoring.
- Principle 16 — Accounting and auditing standards
  - Financial reporting regime derived from FRA administered by RC; ASRB, ICANZ and SC play roles.
  - Mandatory audit and NZ GAAP for reporting entities; auditors examine prospective financial information in prospectuses with limited scope opinion.
  - ASRB functions: approve standards and liaise on harmonization with Australia; recommended adoption of International Financial Reporting Standards commencing in 2007.
  - ICANZ: established under ICANZ Act 1996; Code of Ethics; regulates members and enforces professional engagement standards; no formal government oversight of ICANZ interpretation processes.
  - SC role: reports on financial reporting quality and developing pilot review program for financial statements of public issuers (plan expected finalization in 2004).
  - Disclosure of auditor changes: no explicit timely public disclosure requirement for resignation, removal or replacement of external auditors; recommendation that NZX Listing Rules specify such disclosure as continuous disclosure.
  - Assessment: Broadly Implemented.
  - Reasoning: ICANZ interpretation process not subject to public-interest oversight; lack of explicit timely auditor change disclosure.

### Principles for Collective Investment Schemes (selected findings)
- Principle 17 — Standards for eligibility and regulation of CIS operators/marketers
  - Six types of CIS: unit trusts; superannuation schemes; contributory mortgages; life insurance policies; group investment schemes; participatory schemes.
  - Marketing of CIS to the public must comply with Securities Act offer provisions.
  - Supervisory regimes:
    - Statutory supervisors of participatory schemes subject to comprehensive eligibility criteria.
    - Other CIS types: requirements generally include asset segregation and a trust deed with a trustee to supervise operator obligations; criminal offences for persons convicted of dishonesty acting in certain management roles without consent.
    - SC powers: orders in respect of contributory mortgage brokers (prohibit acting, appoint another broker, replace directors of nominee company); revoke authorization of a participatory scheme’s statutory supervisor.
  - Ongoing obligations: keep offer documents accurate and up-to-date; material changes may require prospectus amendment or reissue; statutory supervisors must report material changes in management or organization to SC.
  - Auditing and reporting: all issuers must keep accounting records and prepare audited annual financial statements under FRA; CIS audited statements filed with RC and qualified audit reports referred to SC and ASRB; contributory mortgage brokers audited quarterly.
  - Inspections: no program of routine inspections by securities regulator; SC has inspection powers and can inspect CIS affairs when concerns arise.
  - Delegation and liability: operators can delegate functions but not legal obligations; a delegate assuming core functions may meet definition of “issuer” and be directly liable to investors.
  - Assessment: descriptive findings only in supplied content (no single implemented rating block in provided excerpt).

*Source: IMF staff assessment as contained in the supplied chapter/section text.*

### Part 5 of the Securities Act allows for mutual recognition and application of overseas securities

### Part 5 of the Securities Act allows for mutual recognition and application of overseas securities regimes in New Zealand and for New Zealand’s regime to be extended to overseas offers under application and regulation regulations.

### Overview and overall assessments
- Principle 17 (Regulatory oversight of CIS operators/operators’ conduct): Assessment — Not Implemented.
- Principle 18 (Legal form, structure of CIS and segregation/protection of client assets): Assessment — Partly Implemented.
- Principle 19 (Disclosure necessary to evaluate suitability and value of CIS interests): Assessment — Broadly Implemented.
- Principle 20 (Asset valuation, pricing and redemption of units): Assessment — Not Implemented.
- Principles for Market Intermediaries (21–24): Broad theme assessments — Partly Implemented across most principles (21, 22, 23, 24).
- Principles for the Secondary Market (25–29): Mixed assessments — Partly Implemented for 25, 26, 28; Fully Implemented for 27 and 29.
- Principle 30: Assessment — Not Assessed / Not Applicable.

### Collective Investment Schemes (Principles 17–20) — findings and gaps
- Structural and regulatory complexity:
  - The Securities Act provides a common regulatory framework for various types of CIS in their capacity as issuers and regarding disclosure documents, but regulation of CIS operators/managers and conduct varies by product.
  - Various categories of CIS operators are regulated under different statutes and obtain authorization from different regulators and authorities.
  - The regulatory scheme for CIS operators is relatively complex and somewhat less transparent.
- Specific deficiencies (explaining Partly/Not Implemented ratings):
  - No detailed prescribed eligibility criteria for CIS operators and no program for ongoing regulatory oversight of CIS operators.
  - Reliance on supervision by trustees exists, but that alone may be insufficient to ensure investor protection across all CIS types.
  - Lack of regulatory assurance that standards relating to legal form and structure of all CIS are enforced; inadequate notification to regulator of proposed changes to investors’ rights; lack of segregation of assets for participatory schemes.
  - Asset valuation and NAV requirements: asset valuation requirements exist for some CIS, but not all CIS are required to have net asset value calculations conducted on a regular basis in accordance with NZ GAAP.
  - No prescriptive regulatory requirements addressing the circumstances in which redemptions can be suspended; no prescriptive requirements with respect to pricing errors.
- Recommended reforms to address gaps (drawn from text):
  - Possible reforms for Principle 17 include:
    - (1) appointment of a trustee or statutory supervisor to oversee contributory mortgage brokers (or provide for direct regulatory oversight);
    - (2) high level minimum entry and ongoing standards concerning CIS operators' honesty and integrity, competence, financial capacity, internal controls, powers and duties;
    - (3) general conflict of interest standards for CIS operators and their trustees or supervisors;
    - (4) minimum standards for CIS operators to provide periodic and timely reports to trustees or statutory supervisors (or to the appropriate regulator), including immediate reporting of material contraventions;
    - (5) minimum requirements for trustees or statutory supervisors to conduct periodic inspections of CIS operators and timely reporting of material contraventions to the SC;
    - (6) suspension or prohibition of any CIS operator by the SC; and
    - (7) issuance of directions by the SC to a trustee or statutory supervisor not fulfilling responsibilities and, in serious cases, removal and replacement with the SC’s appointee.
  - For Principle 18:
    - Review a sample of trust deeds and deeds of participation to determine significant concerns and, if needed, specify minimum standards in the legislative framework while allowing trustees/supervisors to negotiate higher standards.
  - For Principle 20:
    - Consider adopting consistent, minimum regulatory standards regarding asset valuation, pricing and redemption.

### Disclosure, reporting and investor information (Principle 19)
- Mandatory disclosure elements for public offers of CIS units include:
  - (1) the legal constitution of the CIS;
  - (2) investors’ rights in the CIS;
  - (3) the asset valuation methodology;
  - (4) procedures for the purchase, redemption and pricing of units;
  - (5) relevant audited financial information;
  - (6) information about the custodian, if any;
  - (7) the CIS’ investment policies;
  - (8) risk disclosure;
  - (9) the appointment of any external administrators, investment advisers or managers with significant and independent roles; and
  - (10) fees and expenses in relation to the CIS.
- Annual reporting:
  - Annual audited financial statements prepared in accordance with and registered under the FRA must be prepared for all CIS; managers of unit trusts must send to unitholders each year an audited statement of accounts.
- Implementation concern:
  - Unitholders may not receive annual reports in a timely manner because reports need not be made publicly available for almost six months after the end of the financial year (only listed CIS disclose preliminary results earlier).

### Market intermediaries (Principles 21–24) — structure, controls and failure procedures
- Categories of market intermediaries:
  - (1) sharebrokers; (2) futures dealers; (3) investment advisers and brokers; and (4) contributory mortgage brokers.
- Entry standards and licensing (Principle 21):
  - Sharebrokers: individuals require a District Court license; capital requirements are not imposed via the District Court licensing; no central register of licensees exists.
  - NZX Firms (37 NZX Firms) are subject to comprehensive admission criteria including: (1) minimum capital requirements; (2) fit and proper standards; (3) standards for internal controls, risk management and supervisory systems; and (4) agreement to be bound by NZX Business Rules.
  - Futures dealers require SC authorization guided by criteria such as experience, financial stability and capital adequacy, integrity and admission to an authorized futures exchange.
  - Investment advisers and brokers (other than sharebrokers) are not licensed; they are subject to a disclosure regime with limited enforceability and no dedicated regulator for enforcement.
  - Assessment status: Partly Implemented — minimum entry standards adequate for NZX Firms and many futures dealers, but insufficient for many other intermediary categories.
- Capital and prudential requirements (Principle 22):
  - NZX Firms and many futures dealers are subject to initial and ongoing capital and prudential requirements; many other intermediaries (contributory mortgage brokers, some investment advisers, non-NZX sharebrokers) are not.
  - NZX has implemented a pro-active compliance program including comprehensive assessments of NZX Firms.
  - Assessment status: Partly Implemented.
- Internal organization and conduct standards (Principle 23):
  - NZX’s Conduct Rules specify detailed standards (recordkeeping, settlement/payment systems, ethics, client funds trust accounts, compliance officers, written client contracts, etc.).
  - Other market intermediaries (non-NZX sharebrokers, many investment advisers, contributory mortgage brokers) do not face comprehensive standards or oversight.
  - Assessment status: Partly Implemented.
- Failure procedures and crisis management (Principle 24):
  - Existing measures:
    - NZX: early warning notices for changes affecting Liquid Capital; discretion to intervene; Fidelity Guarantee Fund (capped at $NZ 500,000 total liability; maximum amount payable to any claimant $NZ 20,000 or greater as NZX Board determines); FASTER System supports settlement and client asset tracing; NZX developing crisis management scenarios and a policy.
    - NZFOE: Business Conduct Committee powers, fidelity fund for compensation.
    - SC: powers to intervene in contributory mortgage brokers and impose prohibition orders or replace directors/secretary of nominee companies; Corporations (Investigation and Management) Act permits RC to give advice/assistance, issue binding directions and enable appointment of a statutory manager; eight finance and property management companies were put into statutory management in June 2003.
  - Gaps and recommendations:
    - No comprehensive, formalized crisis management plan exists across securities regulators and SROs to deal with intermediary failure.
    - Recommended crisis plan elements: (1) build on experience and develop scenarios; (2) identify legal and operational issues and resolution approaches; (3) specify trigger points and timetables; (4) include contact details for key domestic and overseas regulators.
  - Assessment status: Partly Implemented.

### Secondary market structures and market integrity (Principles 25–29)
- Authorization and oversight of trading systems/exchanges (Principle 25):
  - Markets may hold themselves out as securities exchanges only with Minister recognition; futures exchanges require SC authorization.
  - Minister has discretion, subject to notice and hearing, to require registration/authorization where not requiring it likely detracts from integrity, effectiveness or investor confidence.
  - Conduct rules of registered securities exchanges must be approved by the Minister on the SC’s advice; regime does not expressly require assessment of operational competence or fitness as part of registration.
  - Oversight arrangements: SC-NZX MOU, Operations Group (quarterly) and Strategic Group (bi-annual) review; no comprehensive program for oversight of NZX operations.
  - Assessment status: Partly Implemented.
- Ongoing supervision of exchanges (Principle 26):
  - SC has powers to inquire and issue directions; cannot directly require a registered securities exchange to amend its conduct rules but can recommend Minister action; no comprehensive program of ongoing regulatory oversight.
  - Assessment status: Partly Implemented.
- Transparency of trading (Principle 27) — findings and systems:
  - NZX’s FASTER System:
    - Requires all on-market transactions between NZX Firms to be completed via FASTER.
    - Provides real-time pre-trade data: quote basis, last price, change in price, number of trades, bid depth total, number of bids, bid price, offer price, offer depth, number of offers, offer depth total, open price, high price, low price, closing price, and weighted average price.
    - Trades are published on a real-time basis; subscribers choose real-time or delayed feeds.
  - NZFOE uses SYCOM: immediate entry/display of bids and offers and procedures for end-of-day price determination disclosed via SYCOM.
  - Assessment status: Fully Implemented.
- Detection and deterrence of manipulation and unfair trading (Principle 28):
  - Current legal framework limitations:
    - No specific statutory provisions in securities trading law expressly prohibiting manipulative/unfair practices; some forms addressed under general fraud or Fair Trading Act 1986.
    - Insider trading not a criminal offence; civil liability exists with limitations (requirement to prove insider received information through relationship with public issuer).
    - No express prohibitions in securities legislation for front-running (though NZX Code of Practice Rule 4.7 prohibits front-running); NZX Business Rules prohibit manipulative practices.
  - Detection/deterrence tools:
    - NZX uses SMARTS to monitor trading, create alerts and support inquiries/referrals to SC.
    - NZX pro-active inspection and compliance program and on-site inspections of NZX Firms.
  - Government reform proposals (Minister’s recommendations expected to be legislated in 2004):
    - (1) eliminate requirement to prove inside information acquired through a relationship with an insider;
    - (2) introduce prohibitions on disclosure- and trade-based market manipulation;
    - (3) introduce criminal penalties regime for insider trading, tipping and market manipulation; and
    - (4) introduce a civil penalties regime, enforceable by the SC, with civil burden of proof for insider trading, tipping, market manipulation, and misleading and deceptive statements under the Securities Act.
  - Proposed penalty magnitudes in Minister’s recommendations:
    - Criminal penalties of up to 5 years’ imprisonment and a fine of up to $NZ 100,000 for an individual and $NZ 300,000 for a corporation.
    - Civil penalties of up to the greater of $NZ 1,000,000 and three times the gain made or loss avoided.
  - Assessment status: Partly Implemented.
- Management of large exposures, default risk and market disruption (Principle 29):
  - NZX monitors Liquid Capital and large positions daily; can instruct firms to reduce exposure or increase margins.
  - FASTER Registry holds size and beneficial ownership information; Delivery versus Payment eliminates principal risk in settlement.
  - NZX Regulation 3 provides for full trust accounting and recovery procedures if a firm defaults.
  - Fidelity Guarantee Fund caps: total liability $NZ 500,000; maximum per-claimant $NZ 20,000 or greater as NZX Board may determine.
  - Average trade statistics noted: average trade size exceeds $40,000; excluding trades exceeding $NZ 100,000 (which account for 20 percent of all trades), the average trade size drops to $NZ 9,000.
  - Assessment status: Fully Implemented.
- Regulatory gap remedy suggestions:
  - Amend the Securities Markets Act to require assessment of operational competence and fitness of market operators as part of registration.
  - Amend securities legislation to authorize the SC (or Minister on SC advice) to direct a recognized securities exchange to amend conduct rules on public interest grounds.

### Recommended actions (summary from Table 3)
- Improve public understanding and regulator–industry education (Principle 4).
- Develop and publish a Code of Conduct for SC and TP staff, with monitoring (Principle 5).
- Amend securities legislation to set comprehensive, high-level principles for regulated securities and futures exchanges and require operational competence assessments; formalize oversight plans and expand SC powers to direct conduct-rule amendments (Principles 7, 8, 25, 26).
- Implement reforms to remedies and penalties and strengthen enforcement resources (Principles 9 and 10).
- Devote more resources to risk-based review of disclosure documents and improve timeliness of financial reporting by unlisted public issuers (Principle 14).
- Amend company and securities legislation to improve shareholder remedies and centralized filing of substantial securityholder/director/officer transaction notices (Principle 15).
- Ensure oversight of audit standard interpretations and immediate disclosure requirements regarding external auditors (Principle 16).
- Amend securities legislation to strengthen oversight of CIS operators and trustees/statutory supervisors, set minimum entry and ongoing standards and reporting/inspection duties, and empower the SC with suspension/prohibition and replacement authority (Principles 17–20).
- Enact a more comprehensive regulatory oversight regime for market intermediaries (licensing or equivalent periodic reporting and risk-based oversight) and develop a crisis management plan for intermediary failure (Principles 21–24).
- Amend securities legislation to specify high-level standards for exchange trading systems: transparency, detection/deterrence of market manipulation and proper management of large exposures/default risk/market disruption (Principles 27–29).
- Implement the government’s proposed prohibitions and enhanced penalties for market manipulation and insider trading as soon as possible (Principle 28).

*Source: IMF assessment text on Part 5 of the Securities Act and IOSCO Principles (excerpts).*

### 6.      The New Zealand authorities consider the FSAP mission’s findings and

### _cr04417 - 6.      The New Zealand authorities consider the FSAP mission’s findings and

### Authorities' response and overall view
- The New Zealand authorities consider the FSAP mission’s findings and recommendations helpful, and note that, in many areas, work is already under way to further improve observance of the IOSCO Principles.

### Endorsement of forthcoming law reforms and consideration of technical recommendations
- The authorities note the FSAP team’s endorsement of the forthcoming law reforms relating to the introduction of comprehensive prohibitions on market manipulation, insider trading and enhanced penalties and enforcement powers.
- The authorities welcome the constructive technical recommendations designed to improve New Zealand’s observance of the IOSCO Principles, and will give consideration to them.
- The team’s suggestions with regard to regulatory oversight of market intermediaries and collective investment schemes will be considered in the proposed reviews of the relevant legislation to be undertaken in the near future.

### Legislative approach to exchange rules and standards
- The authorities note the recommendation that legislation be amended to specify standards for regulated exchanges’ rules with respect to trade transparency, unfair trading practices, management of large exposures, default risk and market disruption.
- The authorities consider that the broad public interest test in the current legislation provides flexibility for these things and others to be considered when approving exchange rules, and is preferable to a prescriptive approach.

### Securities Commission oversight plan for regulated exchanges
- The Securities Commission has decided to develop a formal oversight plan for regulated exchanges this year and has informed NZX.
- It is most likely that details of this plan, once settled, will be published.
- The oversight plan will cover some of the matters identified by FSAP as appropriate “ongoing standards” for regulated exchanges and the Commission expects to report on its oversight actions.

*Source: _cr04417 - 6.      The New Zealand authorities consider the FSAP mission’s findings and*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04417.pdf_