Chairman, Simon Allen said yesterday the NZSE had recently reviewed its existing regulations relating to members activities in relation to clients and employees dealings.
'The new regulations cover a variety of market activities and broker and client information procedures. Most of these procedures are already followed by member firms or are in place in other markets but the time has come to more clearly identify the high standards that are applied across the industry", Mr Allen said.
Amongst other changes, the regulations aim to minimise any potential conflict of interest between clients and employees of member firms. Employees are not permitted to sell shares within 10 days of buying them.
Embodied in what is known as 'Regulation 19', relating to client information and dealing procedures, the additional requirement recognises that the markets protective mechanisms are for the benefit of all participants. The objective is to afford the maximum protection to both investors and members and their employees in the share transaction process and ensure that high ethical standards are present and adhered to", Mr Allen said yesterday.
In order to strengthen existing client confidentiality and security the NZSE is upgrading the level of client information contained on members databases and submitted to the NZSE for security matching.
By requiring greater detail about clients as part of the NZSE's Common Shareholder Number (CSN) and 'Know Your Client procedures, members can ensure the unique identities of clients are protected and that they are better able to give appropriate advice.
Investors should be generally aware that the existing and additional provisions of note include:
Client Identification Information
In order to gain a CSN clients must supply members with sufficient personal information, to ensure uniqueness of identification such as Passport, drivers licence details and date of birth.
To ensure that members give advice relevant to the circumstances of clients, important 'Know your Client' information should be provided, including residential, employment, family structure, taxation, investment and other relevant personal information. Member firms will also have a process for new account opening and verification involving more than one member of that firm, and clients will no longer be able to transact business, for example, in cash; from a post office box; or whilst in a position of bankruptcy.
Disclosure of Interest
Where a member or relatives have an indirect or professional interest in a company or securities or a transaction, the member may not advise or deal in the transaction until that interest has been fairly disclosed.
Acting as Principal
Where members or prescribed persons employees and investment advisors employed under the oversight of a member), have a beneficial entitlement to a transaction, that interest must be disclosed. Members must also disclose where they are acting for both parties in a transaction.
Duty of Care
Members must ensure that their Duty of Care extends to ensuring that advice provided is property researched, that they do not intentionally or unintentionally initiate rumours, remain objectivity and refrain from commenting in the news media without property identifying themselves.
Client Orders Precedence
Members must ensure that transactions are carried out in order of precedence and that orders are not fitted on behalf of members or prescribed persons ahead of an unexecuted order on the same terms for a client. Transactions for members and employees must received prior written consent of a principal of the member firm.
Prescribed Persons
Defining member firms, principals and directors and shareholders, employees or agents or consultants or their immediate families or beneficial interests, as 'Prescribed Persons' will ensure the clear identification of the requirements of conduct on those persons.
Discretionary Accounts
The supervision of discretionary accounts by senior persons within a member firm or by a Compliance Officer will take place to ensure that excessive trading or unsuitable investment selection is avoided. Reviews will be conducted on a semi-annual basis.
Controls and Procedures
Regular performance checks are required for member firms on their order and execution and settlement processes.
Staff Training
Member firms are required to carry out suitable staff induction training and to ensure that all client advisors are at least associate members of the NZSE and have passed the required examinations. The NZSE's members are also required to ensure that suitable background checks are carried out on new employees that branch offices are sufficient supervised and that compliance staff report regularly and up to a standard.
Client Trading and the Recording of Client Instructions
To avoid Insider Trading members who suspect that the market for a stock may be uninformed or that trading is unusual are encouraged to raise those concerns with the NZSE. Members are also encouraged to use voice-recording systems for telephone orders to support the integrity of order taking.
Trading by Representatives and Employees Representatives and employees of member firms who deal in securities must receive written authority to do so from a senior member of the firm and FASTER dealers are not permitted to enter orders on behalf of themselves or any associated persons. Representatives and employees of member firms are required to hold all securities purchased by themselves or any account over which they have a controlling interest, discretion or influence, for a minimum period of 10 business days. There are provisions for a waiver to be granted by the Managing Principal of a firm in the case of special personal circumstances.
Allocation Policy
Member firms must provide to clients details of their allocation policies in relation to pooling of orders and the allocation of securities to buy and sell orders
