Final changes arising from Securities Legislation Bill in force on 29 February

The last of the changes made by the 2006 Securities Legislation Bill came into effect on 29 February. In this note, we provide you with a brief outline of the final key components of the Government's securities reform package which are now in place.

1. Background

The Securities Legislation Bill, which was passed in October 2006, represents the completion of part three of the Government's four part securities and financial market reform programme. Earlier reforms saw the introduction of the Takeovers Code in 2001 and an overhaul of regulations governing the stock exchange and listed issuers in 2002. The fourth and final part of the securities reform programme is currently underway as part of the Government's Review of Financial Products and Providers. This addresses issues relating to securities offerings under the Securities Act 1978.

The Securities Legislation Bill was passed as:

• the Securities Amendment Act 2006;

• the Securities Markets Amendment Act 2006;

• the Takeovers Amendment Act 2006; and

• the Fair Trading Amendment Act 2006.

Most of the Securities Act amendments and Takeovers Act amendments came into effect after their assent on 24 October 2006. However, several key components of the new securities law were kept on hold pending the approval of regulations. These were the Securities Markets (Substantial Security Holders) Regulations 2007, the Securities Markets (Market Manipulation) Regulations 2007 and the Securities Markets (Investment Advisers and Brokers) Regulations 2007, which were enacted by Order in Council on 3 December 2007. The regulations and the remaining provisions of the Amendment Acts noted above all came into effect on 29 February 2008.

For a complete overview of all the changes made by the Securities Legislation Bill see Bell Gully's earlier article "Securities Legislation Bill completes parliamentary process" in the Spring 2006 issue of Commercial Quarterly.

Latest changes in force

The latest key components to take effect include:

• new disclosure requirements for investment advisers and brokers

A new part 4 of the Securities Markets Act 1998 together with the Securities Markets (Investment Advisers and Brokers) Regulations 2007 provide for additional disclosure obligations on investment advisers and investment brokers prior to giving advice or receiving investment money or property.

• a new insider trading regime

  The new insider trading provisions in the Securities Markets Amendment Act 2006 reflect a new rationale for the prohibition of insider trading. In particular, under the new law, anyone can be an insider and inside information can come from any source. Formerly, a person was only an "insider" if they received the information directly or indirectly through their relationship with the public issuer.

A comprehensive overview of the new insider trading provisions is available on our website in a paper titled The New Insider Trading Laws presented by Bell Gully senior associate Jenny Cooper to the Securities Legislation and Capital Markets Update conference held in Auckland in September 2007. Also see:

• the article Urgent law change needed to remedy serious flaw in new insider trading laws by Bell Gully partner and firm chairman Roger Partridge and senior associate Jenny Cooper; and

• the article Insider trading: how effective is a Chinese wall defence? in the Winter 2007 Commercial Quarterly for some insight into how the New Zealand courts may assess the effectiveness of a Chinese Wall defence to an allegation of insider trading.

• new law on market manipulation

  Dedicated provisions in the Securities Markets Act 1988 prohibiting forms of market manipulation (or market rigging) have been introduced under the new regime. Three new offences are created for manipulating or interfering with the operation of a securities market. The rules are intended to prohibit practices that are considered to impermissibly affect the price of listed securities and distort the operation of the market in listed securities.

• changes to the substantial security holders' disclosure regime

  The basic features of the substantial security holders' disclosure regime contained in the Securities Markets Act 1988 have not changed under the new law, but the law has been amended to clarify and simplify the situations in which disclosure is required with a view to reduce compliance costs over the medium to long term.

  The new Securities Markets (Substantial Security Holders) Regulations 2007 require some changes to the information that needs to be disclosed when releasing a Substantial Security Holder notice to the market. Under the new regulations, there are three types of disclosures of Substantial Security Holdings:

• disclosure of beginning to have substantial holding;
• disclosure of movement of 1% or more in substantial holding or change in nature of relevant interest or both; and
• disclosure of ceasing to have substantial holding.



The Regulations allow NZX to set or change the forms and delivery methods for each of the above event disclosures with the Minister of Commerce's approval. At this stage, it appears that NZX has chosen to use the same forms set out in Schedule 1 of the Regulations. As required by the Regulations, NZX has made the approved forms available on its website.

To access these forms from the NZX's website click here. Note also that under Regulation 4(2)(a) NZX requires these forms to be completed in either word or plain text format and emailed to announce@nzx.com.

In addition to the above disclosure notices, the Regulations also specify forms for a public issuer to use when it requires a person to disclose relevant interests to it under section 35 of the Securities Markets Act or disclose information to it under section 35A of the Act.

• extended liability for the continuous disclosure regime

  The new part 5 of the Securities Markets Act 1988 contains amended remedies for a contravention of the continuous disclosure obligations. The expanded definition of contravene that is provided by part 5 has the ability to capture senior management who are involved in a contravention by a public issuer of the continuous disclosure obligations. For further details on this topic please refer to our article "Expanded liability under the continuous disclosure regime", which was published in the Winter 2007 Commercial Quarterly

• changes to the takeovers regime: truth in takeovers

  The remaining provisions of the Takeovers Amendment Act 2006, which came into force on February 29, introduce market manipulation prohibitions to apply in relation to takeovers. The provisions are broad and cover communications outside the formal offer, target company statement and independent advisers document; with the changes likely to have a significant impact on the way takeovers are run given that many takeovers are won through these communications. For further details on these changes please refer to the article "Truth in takeovers: market participants should prepare for a more rigorous approach" in the Summer 2008 issue of Commercial Quarterly.

New Securities Law website and Guide

In 2007, the Securities Commission set up a website (www.newsecuritieslaw.govt.nz) to help people understand the new securities law. The general scope of the new law is explained on the website and people can register to receive updates as they become available. The website includes a collection of articles and news releases on the new law.

The Securities Commission has also prepared a "Guide to the New Securities Law 2008", which explains the changes made to the Securities Act 1978 and the Securities Markets Act 1988.

An overview of the new securities law was also published in the Securities Commission's publication, The Bulletin, No 38, January 2007 with a follow up article in The Bulletin No.42, January 2008, which focuses on the Commission's powers to enforce the new rules, penalties and compensation.

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.