NZX performance good, but dual delegation inadvisable

NZX's performance as a registered exchange has been good, according to the Securities Commission's annual oversight review of NZX.

The Review found that NZX was discharging its obligations according to its conduct rules and the Securities Markets Act 1988. The Review covered the 2008 calendar year, but also discussed some some matters which occurred in 2009 relating to NZX's supervision of its markets.

Among other things the Commission found:

• NZX is taking appropriate action to minimise the risk of non-compliance by listed issuers and market participants in relation to their obligations under the Listing Rules and Participant Rules.
• During the review period, NZX increased the disclosure requirements relating to back-door and reverse listings, which is likely to have positive outcomes for investors.
• NZX's risk-based supervision programme has an appropriate process for assessing market participants' risk of non-compliance with the Participant Rules and a thorough on-site inspection process.
• While noting that NZX had continued to manage appropriately conflicts of interest between its commercial and regulatory functions, the Commission considers that the dual delegation for the supervisory function of NZX to both the Head of Supervision and the NZX CEO is inadvisable, given that the CEO is also responsible for NZX's commercial functions. The review noted that international best practice is for the commercial and regulatory functions of demutualised exchanges such as NZX to be formally separated to remove the potential for supervisory functions being de-prioritised for commercial reasons. The Commission notes that NZX has a different view.

This was the fourth oversight review of NZX conducted by the Securities Commission.

The Commission's report is published at http://www.seccom.govt.nz/ (PDF 142KB)