Securities Legislation Bill

I move, That the Securities Legislation Bill be now read a first time. At the appropriate time I shall move that the bill be referred to the Commerce Committee.

This bill is designed to build confidence in New Zealand financial markets and to encourage investment in New Zealand’s financial markets by strengthening the regulatory framework embodied in securities, securities trading, and takeovers law. Accordingly, the bill amends the Securities Act, the Securities Markets Act, the Takeovers Act, and the Takeovers Code.

Current law relating to the trading in securities and futures on registered exchanges is not working as effectively as it should be. For example, our insider-trading law is far too complex. Despite the regime being in force for over 10 years, no one has been found liable for insider trading under the Act and this is not because we do not think that insider trading happens. The Securities Legislation Bill proposes a new rationale to govern this conduct so that insider trading would be regarded as a harm to the entire market, not just to the particular company and its shareholders. It acknowledges that insider trading has the potential to damage New Zealand’s reputation as a place to invest.

Other aspects of the current law do not conform to international standards or best practice. For example, New Zealand does not have rules targeted specifically at addressing market manipulative practices that create a false impression of trading. This lack of regulatory oversight can affect both international and domestic confidence in our market. The bill introduces comprehensive prohibitions against market manipulation. When seeking help, people need to be able to make a decent assessment of their financial advisers. Are they qualified? Do they belong to a professional organisation? What commissions will they earn if people take their advice? Who can people turn to if it all goes wrong? Current disclosure requirements for investment advisers are inadequate in achieving this. This bill, therefore, aims to improve the quality of adviser disclosure and establishes the Securities Commission as the public enforcement body policing the disclosure laws.

For a market to have integrity, the regulatory institutions that monitor and enforce the law need to have sufficient powers to carry out their functions effectively. The bill increases the size and range of penalties and remedies under the relevant Acts in order to deter contraventions of the law and to encourage compliance with regulatory obligations.

In light of all this, some of the main provisions and benefits of this bill include strengthening the law relating to insider trading by adopting a new regime similar to the Australian regime, based on the market efficiency and market fairness rationales for the regulation of such conduct. The new provisions are designed to improve monitoring of insider-trading behaviour, and enforcement action against misconduct. Studies show that countries achieve additional liquidity in their markets if they have an effective enforced insider-trading regime.

The bill introduces comprehensive prohibitions against market manipulation. These provisions covering misleading or deceptive conduct in relation to dealings in securities or takeover activities empower the regulatory bodies with the relevant expertise, the Securities Commission and the Takeovers Panel, to enforce the prohibitions. Deterring manipulative practices will eliminate artificial price distortions and, therefore, assist market efficiency. The prohibitions will also bring New Zealand into line with international practice.

I turn to improvements to the law relating to substantial security holder disclosure. The bill simplifies the regime so that mandatory disclosure requirements apply only to listed voting securities by class. This will make for disclosures that are easier to understand. It will also promote an informed market by ensuring that the identity and trading activities of persons who may control or influence significant voting rights in a public issue are known, which will enhance investment adviser disclosure and improve enforcement of that law.

The bill ensures that advisers bring matters relevant to an investor’s trust and confidence in both the adviser and his or her advice to the investor’s attention. The creation of new offences, where advisers recommend illegal offers of securities or advertise in a misleading way, will deter conduct particularly harmful to the public.

The Securities Commission will have an enforcement role over investment advisers and brokers, ensuring that disclosures are made to the public, remedying breaches of the disclosure laws, and, where appropriate, taking proceedings in the public interest. This will achieve consistency and cohesion in the penalties and remedies available for breaches of securities and takeovers law. The introduction of criminal penalties for insider trading and market manipulation, as well as of a range of civil pecuniary penalties across the legislation, aims to deter conduct harmful to the integrity and efficiency of securities markets, empowering the Securities Commission to be a fully effective enforcement agency for securities law.

The bill extends the commission’s brief so that it has a consistent enforcement role for all securities laws, including the ability to apply for civil remedies and compensation on behalf of public issuers and those who have suffered loss as a result of contraventions of the law. Under this bill the Securities Commission will be able to apply for court orders in respect of breaches of securities law. For example, it could apply for a court order to prohibit or disqualify a person from being a director or from taking part in a company’s management.

Public confidence in sound and effectively enforced securities laws makes New Zealand a more attractive investment destination. The measures in this bill will encourage public confidence in our capital markets and the institutions that support those markets.

Debate interrupted.