Market Supervision

Running an exchange is all about running a well regulated business. NZX operates its markets within a regulatory framework designed to maximise transparency, fairness, efficiency and competitiveness, and to promote confidence among all market participants. This is effected by constant and vigilant surveillance of market activity.

NZX's regulatory functions include:

  • supervising listed issuers' (companies and other entities which issue securities) compliance with NZX Listing Rules
  • supervising market participants such as NZX Firms and NZX Advisors
  • assisting the Securities Commission as a co-regulator as required under the Securities Markets Act 1988.

Regulatory Principles
As a front line regulator of its markets NZX formulates rules and practices. These rules and practices reflect the following core principles:

  • all shareholders should be treated fairly and equitably.
  • listed issuers should provide full, timely and accurate disclosure information
  • investors and market intermediaries should be protected against systemic risk.
  • any unfair share trading practices should be detected and met with effective remedies.
  • market rules should be backed by effective mechanisms for investigation, surveillance and enforcement, with strong sanctions against deliberate breach of the rules.
  • the costs of regulatory compliance should be minimised without compromising achievement of the other principles.

NZX formulates the standards required of listed issuers and market participants in its Listing Rules and Participant Rules with reference to these principles.

Requirements of a Registered Exchange
NZX is the only registered securities exchange in New Zealand.

The Securities Markets Act 1988 contains provisions regulating the establishment and on-going operating of securities exchanges. Under the Securities Markets Act 1998 a person can not hold itself out as a securities exchange unless it is registered under the Act. Furthermore the Act imposes restrictions on persons operating a securities exchange in certain circumstances. To become a registered securities exchange a body corporate must, among other things, have its Conduct Rules approved by Order in Council by the Governor General on the recommendation of the Minister of Commerce. The Conduct Rules are the rules that govern the relationship between the registered exchange and the entities with their securities listed on the exchange and the rules that govern the conduct of business on the market and persons who are authorized by the exchange to conduct trading activity on the exchange.

The Act also includes provisions relating to the imposition of a control limit (which is the highest percentage of voting rights in the body corporate that may be held or controlled by any person) on a registered exchange.

As a Registered Exchange NZX's conduct rules (its Listing Rules for the NZSX/DX and NZAX Markets and the NZX Participant Rules and the NZX Discipline Rules) have been approved. NZX also has a 10% control limit. The Board of NZX have included this 10% control limit (in wider terms to that of the legislation) in NZX's Constitution.

There is a set process for amending the NZX Conduct Rules. Download a copy of the process.

Continuing requirements once registered as a securities exchange
Upon registration, an exchange must operate its securities markets in accordance with its approved Conduct Rules. Any changes to those Conduct Rules also go through a statutory approval or disallowance process, depending on the nature of the proposed rule changes.

As a registered exchange NZX also assumes a number of reporting obligations to the Securities Commission. The Securities Commission is established by the Securities Act 1978 and that Act prescribes its role (among other things) as to keep under review practices relating to activities on securities markets. The Securities Commission also has monitoring powers over NZX conferred by the Securities Markets Act 1988.

Under the Act NZX must:

  • Notify the Securities Commission where it takes any disciplinary action for breach of its rules
  • Notify the Securities Commission where it knows or suspects that a person has committed, is committing or is likely to commit a significant contravention of NZX's conduct rules or certain laws
  • Give any material information disclosed to it under its Listing Rules to the Securities Commission
  • Provide information, assistance and access to its facilities to the Securities Commission or Takeovers Panel where such information, assistance and access is required to assist those bodies discharge their functions.

In addition to the requirement for NZX to notify the Commission of certain matters the Act also confers on the Commission the power to give directions to NZX to suspend trading in a listed issuer's securities or a class of securities in certain limited circumstances where it is satisfied that the direction is necessary in the public interest and where no more appropriate course of action is available.

In recognition of the special importance afforded to the continuous disclosure provisions in NZX's Listing Rules, NZX must consider any submissions that the Commission may make in considering applications for determination of the continuous disclosure Listing Rules (found in section 10). To best facilitate this relationship between the Commission and NZX, NZX has entered into an MOU with the Securities Commission. The Memorandum of Understanding states the shared goal of NZX and the Securities Commission is to ensure the optimum regulation of New Zealand 's securities markets, to enhance the performance and reputation of NZX's stock markets as fair, efficient, deep, well informed and internationally competitive markets and to facilitate appropriate levels and quality of disclosure. NZX and the Securities Commission have agreed a set of guiding principles to achieve this goal. Download a copy of this MOU.

Whilst NZX is regulated by the Securities Commission and the Securities Commission has certain powers over NZX and its listed issuers, the Memorandum of Understanding recognises NZX's role as the front-line regulator of its securities markets and details how NZX and the Commission will work with each other in areas where they have overlapping responsibilities and where NZX has responsibilities to the Securities Commission. The Memorandum of Understanding also details the framework to enhance information flow between NZX and the Securities Commission and to seek to avoid duplication of work between the two bodies.

Conflicts Management
As a registered exchange NZX is required to undertake the supervision of the markets that it operates in respect of listed entities and products and participants and their trading activities on those markets.  This dual role of market operator and supervisor may lead to a perception of conflict between NZX's regulatory and commercial functions. For this reason, it is important for NZX to effectively and demonstrably manage any conflicts arising between its commercial and supervisory roles.  Accordingly NZX has developed a Conflict Management Policy. The purpose of this policy is to identify possible conflicts and to describe the processes in place at a management and Board level to manage these and/or the amendments to NZX's regulatory regime proposed to address these.  Download a copy of the Conflict Management Policy.

Disclaimer: The Regulation section is provided as general information only. It is not intended as a substitute for legal or professional advice to company directors and officers or investors. NZX Limited disclaims any liability arising from the use of this information.