"The key principle behind good regulation is to minimise uncertainty and risk for all market participants," said Mark Weldon, NZSE CEO. "We've tried to develop frameworks for both corporate governance and our own legal and regulatory structure that continue to meet these goals. They are simple to understand, efficient and transparent, and should both enhance investor confidence and the ability of companies to raise capital and grow."
A Corporate Governance Framework for New Zealand
The proposed corporate governance regime NZSE has developed for Listed Issuers, has been tailored specifically for New Zealand's capital markets. It incorporates Rules that set minimum standards designed to enhance investor confidence, as well as a set of principles that provides listed issuers with flexibility to establish their own corporate governance practices. These principles are outlined in NZSE's Corporate Governance Best Practice Code and recognise the differences in corporate size, culture and performance goals.
Key Listing Rule changes:
- The minimum number of independent directors is two, or one-third
- A Director may not simultaneously hold the positions of CEO and Chairman
- Directors should complete an appropriate director certification course
- Issuers are required to establish an Audit Committee, with a minimum of three directors, a majority of independent directors, and at least one with an accounting or financial background
- The external auditor or lead partner should be changed every five years
"We firmly believe that the approach we've chosen will provide the market with a base set of minimum standards of behaviour along with guidance to allow sufficient flexibility for every market participant."
The final proposal (available at www.nzse.co.nz) is now with the Securities Commission for review and will go to the Minister for approval once this review has been complete.
A New Compliance and Enforcement Construct
NZSE is responsible by law to ensure market participants comply with NZSE's Conduct Rules. Under the current system this responsibility is largely discharged by various third parties. The existing structures do not promote consistency between the treatment of Listed Issuers and NZSE Stock Brokers, which has caused concerns for market participants in relation to understanding the underlying principles.
It is critical that NZSE is able to ensure market integrity, safety and confidence. For this reason NZSE recently made a decision to restructure the existing construct, and bring many of these previously external roles, in-house. NZSE has developed a simplified framework for the compliance, enforcement and discipline of all market participants. The new structure has been designed to heighten the Exchange's accountability so that it is better able to effectively discharge its regulatory responsibilities, and promote efficiency and cost effectiveness.
The new framework will consist of a simplified structure made up of three groups:
- NZSE Compliance and Enforcement - an in-house team of NZSE personnel to deal with both broker and issuer compliance. This team will be responsible for market surveillance, initial investigations and referrals of suspected non-compliance to NZSE Discipline, the Broker Audit Programme, risk assessment, applications for waivers and rulings, compilation of guidance notes and dealings with new listing applications, amongst other things;
- NZSE Discipline - a 20 person board comprised of both external (75%) and internal (25%) experts to investigate suspected cases of non-compliance, or hear charges brought before it, make findings, and impose sanctions or penalties where appropriate; and
- NZSE Special Division - a three person independent panel taken from NZSE Discipline, specifically designed to regulate NZSE Limited once listed. Provision for this panel was made at the time NZSE demutualised and this division, and the new construct, will ensure the integrity of the market is preserved.
The proposed new legal and regulatory framework can be downloaded from www.nzse.co.nz. All public submissions on the proposed changes should be directed to Elaine Campbell, General Counsel, NZSE Limited, at PO Box 2959, Wellington or elaine.campbell@nzse.co.nz . Submissions must be received by June 6, 2003.
