Insider Trading in New Zealand
“I know of no more valuable commodity than information”
Gordon Gekko (Michael Douglas), Wall Street, 1987, 20th Century Fox.
The movie “Wall Street” unashamedly glorified the greed
and stockbroker culture of the 1980s. Gekko’s “greed is
good, greed is right, greed works” speech typified the era and
made cinematic history. What the movie also did was cast a light of
immorality on the US securities markets and, in particular, on the
concept of insider trading.
In New Zealand, insider trading is controlled and ideally dissuaded
via our securities regime. Recently this regime has undergone significant
legislative reconstruction with a view to improving investors’ perception
of our markets as being a fair and safe place to invest.
The Securities Markets Act (which was amended in late 2002) is the
foundation of the government’s latest reforms of New Zealand’s
capital markets. Generally speaking the Act has introduced a new continuous
disclosure regime, designed to prevent the abuse of inside information.
The definition of ‘insider’ is broad, but basically it
means a person who has acquired inside information relating to an issuer
because of the position they hold in the issuer (e.g. director, company
secretary or substantial security holder). Inside information in relation
to a public issuer means information which is not publicly available
and would, or would be likely, to affect materially the price of the
securities of the public issuer if it was publicly available.
The new regime is designed to prevent the abuse of inside information
by requiring listed public issuers to continuously disclose any material
information and relevant interests of directors. Material information
is defined in the NZSE Listing Rules as any information that a reasonable
person would expect, if it were generally available to the market,
to have a material affect on the value of any quoted securities of
the issuer (i.e. influence an investor’s decision to buy or sell).
The information must relate to a particular security rather than to
securities or the issuer generally.
The question of materiality becomes particularly important to the
issuer. ‘Material information’ is a subjective test that
may mean different things for different issuers. Essentially a number
of assessment factors will need to be looked at to determine materiality.
It also places some issuers into the difficult position of having to
determine the difference between material information that affects
the value or price of securities issued, and information that is commercially
sensitive and disadvantageous on disclosure. Of course, where material
information reduces the ability to maintain a competitive position,
there is (subject to legislative tests) no need to disclose that information
to the public.
Once the issuer determines that the information it holds is material
information, it can then determine whether that information is exempt
from disclosure. Typically this involves information that a reasonable
person would not expect to be disclosed, that is confidential (and
confidentiality is maintained) and that falls within one of the statutorily
prescribed classes of information (e.g. information that is a trade
secret).
Finally, the new continuous disclosure regime comes with a new set
of teeth to give it extra “bite”, the Securities Commission
may seek court awarded pecuniary penalties of up to $300,000 for non-disclosure
of material information.
If you are unsure of your obligations, or would like clarification
on the points raised in this issue, Brookfields would be happy to assist.
For more information, please contact:
Brendan Meech
Senior Associate
t: +64 9 979 2209
e: Brendan Meech
Last updated:
These articles are intended to be brief in nature and should be used for information only. They should not be relied on as legal advice. |
