Thursday 28th June 2007
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These annual reviews are valuable because they show investors that they can have confidence in NZXs performance as a registered exchange, Commission Chairman Jane Diplock says.
The Commissions overall conclusion is that NZX is satisfying its obligation to operate its markets in accordance with its conduct rules.
The Commission does make some specific recommendations for improvement, and has communicated its concerns and recommendations to NZX, NZX Discipline and the Special Division.
The Commission reviewed NZXs performance of its regulatory functions as a registered exchange under the Securities Market Act 1988. This review focussed on NZXs arrangements in the 2006 calendar year for discharging its obligations.
The Commission reports on NZXs performance under the following headings: conflict management; the NZAX market; NZXs frontline regulation; NZX Discipline; the Special Division; and recommendations arising from the review of the 2005 calendar year.
Among its recommendations, the Commission notes:
NZX should ensure that the practical measures used to ensure the practical separation between its commercial and regulatory functions have reference to the information in relation to for-profit exchanges the Board receives on conflict management.
NZX has agreed to provide the Board with relevant and up-to-date information on conflict management and arrangements that other for-profit exchanges have implemented to manage conflicts (to the extent this is publicly available).
The Board has determined to discuss this matter each November at its two-day Board strategy review. NZX has also agreed to have regard to this information in its practical measures to ensure separation between its commercial and regulatory functions.
NZX Discipline should review its resource requirements and structure, and communicate its needs to NZX, so that delays in dealing with non-urgent work are minimised or removed.
NZX Discipline has agreed to address this issue.
NZX should increase the amount of information it provides about the Special Division and make it easier to find. In particular, the contact details for the Special Division should be included on the Contacts and Supervision of NZX pages of the NZX website.
NZX has agreed to provide more information about the Special Division on its website, in consultation with the Commission.
In conducting its review, the Commission followed the same procedures as for the 2005 review, including:
sending questionnaires to NZX, NZX Discipline and the Special Division; requesting copies of any relevant procedures manuals and process documents; selecting and reviewing a sample of NZXs files across a range of regulatory activities; and conducting interviews with NZX personnel and Board members.
Commission staff also interviewed the Chairman of NZX Discipline and the Chairman of the Special Division. A total of 11 interviews were conducted.
The Commission will conduct an oversight review of NZX each year.
The Commission expects that future reviews of NZX will follow a similar format to this review, in that they will focus on particular issues regarding NZXs performance of its statutory functions.
The concerns and recommendations that the Commission has recorded as a result of this review, NZXs actions and response to these recommendations, and relevant intervening matters, will be reviewed by the Commission next year.
The Commissions report is published at www.seccom.govt.nz.
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