NZX notes the signficant milestone in the continued development of New Zealand’s capital markets, with the Financial Markets Conduct Act coming into effect on Tuesday.
This follows a comprehensive programme of work focussed on improving the regulation of New Zealand’s financial markets, including significant improvements to the oversight of NZX as the operator of registered markets, particularly through the work of the Financial Markets Authority (FMA) established in 2011.
NZX Regulation is the frontline regulator of the markets it operates. It conducts investigations into potential breaches of its market rules, and has the power to take disciplinary action. NZX refers cases to FMA where it believes breaches of financial markets legislation have occurred. Operating well-regulated markets is core to NZX’s objective of growing the capital markets in New Zealand.
As part of FMA’s oversight review process of NZX, each year FMA assesses NZX and produces an annual report on NZX’s compliance with its obligations under the Securities Markets Act and the Authorised Futures Exchange (NZX Limited) Notice. FMA’s second assessment of NZX, published in June 2013, concluded that by the end of the review period NZX was fully compliant with its statutory requirements.
Improvements in NZX Regulation structure and governance in 2013
In 2013, NZX made three changes to further improve its structure and governance to ensure that NZX’s securities markets and derivatives markets are well regulated and operate in a fair, orderly and transparent manner.
As a registered exchange NZX is required to have arrangements in place to enforce compliance with the market rules. In November 2013 NZX Regulation published its Enforcement Policy, which is a guide to assist those with an interest in NZX’s markets to understand the approach it takes to enforcing the market rules. This includes internal service standards monitored by the Board. The Enforcement Policy can be downloaded from NZX’s website at: https://www.nzx.com/regulators/NZXR
In August 2013, the NZX Board established a Regulatory Governance Committee to assist the Board in fulfilling its governance responsibilities relating to NZX's regulatory function. This followed a targeted review of practice in exchanges internationally relating to conflict management.
The Committee plays an important role in supporting the Board’s oversight of the timeliness and quality of NZX’s regulatory decision-making. None of NZX’s CEO, Board or the Committee is involved in regulatory decision-making, with this function delegated to NZX’s Head of Regulation, who is accountable directly to the NZX Board. A copy of the Terms of Reference of the Committee can be found at: http://www.nzxgroup.com/investor-centre/corporate-governance
At the end of 2013, NZX put in place further changes to the structure of the Regulation team. This included the creation of a new Head of Compliance role, which will reflect a split of the current Head of Regulation role in two. The new role will report directly to NZX’s Board, and will have responsibility for NZX’s regulation of its Issuers and Market Participants. Recruitment is currently underway for this role.
Once this position has been filled, NZX’s current Head of Regulation will assume the newly created Head of Policy and Legal role (which will report to the CEO) and will have responsibility for regulatory policy work and for NZX’s general legal function. When implemented, NZX expects this change to further delineate the separation of the regulatory function and contribute in a positive way to our regulation and policy work.
NZX increased resourcing of the teams that operate and oversee the markets in 2013, including NZX Regulation and NZX Surveillance. In addition, the teams’ composition has changed resulting in an increase in knowledge and experience. Combined with the increase in resourcing, this has provided much greater capacity across the regulated markets teams.
This addition of further capacity was timely given the increased activity in New Zealand’s capital markets, including 10 Initial Public Offerings during the year.
Regulatory performance in 2013
NZXR conducted 145 formal investigations and enquiries into possible breaches of NZX rules in 2013 (125 in relation to issuer compliance and 20 in relation to participant compliance) and reviewed 44 formal complaints from third parties in relation to issuer and participant compliance. Of those formal complaints investigated, 31 were from retail clients, 6 wholesale/institutional investors, 1 NZX Advisor, 2 Brokers, 4 industry associations.
In 2013, NZXR referred 9 matters to the NZ Markets Disciplinary Tribunal, compared to 5 referred in 2012. Significantly, the median time for a matter to be referred to the Tribunal reduced from around 8 months in 2012 to around 4 months in 2013.
NZX Regulation initiatives in 2014
NZX Regulation is introducing new investigative case management software this year to help maintain fair, orderly and transparent markets. This software enables the different teams to work together collaboratively and streamline workflow by managing all information and related material from start to finish, which will also improve effectiveness and enable better utilisation of resources.
In addition, NZX is working on a programme to increase public understanding of NZX’s regulatory and enforcement roles, including making more information available for the public to access through our various communications channels such as NZX.com.