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New Zealand Exchange Limited (NZX) would like to outline the process for referral of matters to the Securities Commission.
NZX has a market surveillance team who monitor, by use of SMARTS technology and other means, trading in NZX's Markets. Additionally, NZX has a communication network across the wider investment community, operates the MAP platform and monitors the media on a daily basis.
If the price of a Listed Issuer's security moves in a manner that is not readily explained by information in the market, or there is an unusual volume or value of transactions in a Listed Issuer's security, also not explainable by publicly available information, NZX Regulation may conduct a price enquiry. This is where the Listed Issuer is asked to explain the share volume or price movement. Based on the Listed Issuer's response NZX Regulation determine whether or not to refer the matter to the Securities Commission (Commission).
Referrals are made to the Commission under the Securities Markets Act and the terms of the MOU between the NZX and the Commission1. Under the Act NZX is the front-line regulator of its securities markets and the Conduct Rules. The Commission is the statutory regulator responsible for enforcing breaches of the law. NZX must refer disciplinary actions for contravention of its Conduct Rules and suspected significant breaches of the Conduct Rules or the law to the Commission. NZX may refer other matters to assist the Commission to discharge its functions, e.g. to investigate potential insider trading.
These referrals may also raise issues concerning a Listed Issuer's compliance with its continuous disclosure obligations. Other market events may give rise to questions of a Listed Issuer's compliance with its continuous disclosure obligations, e.g. profit warnings.
NZX and the Commission also have co-regulatory roles in respect of continuous disclosure of material information. The Commission's statutory investigatory powers, and the remedies available to it (in particular its ability to seek compensatory orders on behalf of shareholders who have suffered loss as a result of the Listed Issuer's breach) are broader than those held by NZX. NZX may refer a continuous disclosure matter when it considers that the Commission's enhanced investigatory powers and the remedies available to it may achieve a more effective outcome.
It is a principle in the Memorandum of Understanding between NZX and the Commission that an assessment will be made as to the most appropriate agency to lead an investigation and that NZX and the Commission will seek to avoid duplication of investigations. Once NZX makes a referral it will support the Securities Commission in its inquiry.
When a matter is referred to the Commission and its investigation reveals a potential breach of NZX Listings Rules, the matter can be referred back to NZX for it to consider whether a case should be bought before the NZX Discipline. NZX Discipline is an independent regulatory body that is established to determine breaches of NZX's Conduct Rules. It has the power to impose penalties. Where financial penalties are imposed the monies received must be paid to the NZX Discipline fund which can only be used for the specified purposes set out in the NZX Discipline Rules. This includes payment of NZX Discipline costs.
1The MOU is available from http://www.sec-com.govt.nz/publications/mou
