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NZX to establish conflicts committee after FMA notes ‘growing public perception’

A growing public perception that NZX' regulatory decisions are at risk of undue influence has forced the market operator to strengthen conflict management.

The Financial Markets Authority’s NZX general obligations review, released publicly this morning, gives NZX’s conflict management procedures a pass mark for identifying and managing any potential conflicts between the company’s commercial interests and its role as frontline regulator.

FMA says it has not seen instances of undue influence on NZX’s regulatory decisions but it notes any credible perception of such an influence could undermine the company’s regulatory effectiveness and erode market confidence.

“FMA believes there is a growing public perception that the regulation function may not always be seen to be impartial when investigating complaints or potential breaches concerning entities that have a significant association with NZX outside the normal issuer or market participant relationships.

“This view is based on a growing number of queries and complaints to FMA, as well as media commentary about conflicts that may arise for NZX and how these are managed.”

As reported by NBR last October, the regulator was having its conflicts of interest policy put to the test due to two of its directors’ association with NZX-listed Abano Healthcare.

As part of the FMA review, NZX has agreed to establish a board conflicts committee, expand the scope of a newly created regulatory governance committee to include reviewing policy changes, and involving the NZ Markets Disciplinary Tribunal in regulatory decisions under certain circumstances.

The tribunal’s annual report, highlighted in Friday’s NBR print edition, said it was encouraged by NZX’s greater attention on enforcement but it now wants to see that converted to improved performance.

The FMA raised compliance issues in its report, stating it had seen no evidence of a greater involvement by its enforcement arm in investigating potential breaches by market participants, such as broking firms.

“Accordingly, this will be an area reviewed by FMA in the current period, to assess if the changes advised by NZX have been successfully implemented and are achieving better outcomes."

After concerns raised last year by FMA about the slow pace of investigations, NZX introduced internal service levels – with the intention to refer matters to the tribunal within four months and to conclude enquiries within three months.

However, FMA says further improvements are needed as NZX has no maximum timeframe within which to complete investigations and, after a tribunal referral, there is no specified timeframe for preparation of a statement of case.

NZX has agreed to improve communications about investigations after FMA received complaints.

There should also be a refined process for clear rules breaches, FMA says. NZX has agreed to review its penalty structure for minor and unambiguous breaches.

What do you think? Will a board conflicts committee resolve public perceptions about NZX impartiality? Click here to vote in our subscriber-only business pulse poll.

RAW DATA: NZX General Obligations Review (PDF)765.82 KB

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Comments and questions

NZX should not be for-profit nor have any commercial interests.
It should be a not for profit body/association.

There shouldn't even be the basis where there is competing for shareholders.

Do you put the Ref in a match as a player?
Do you put the card dealer as the player at casino table?


Heck, why don't they make the FMA for profit, if so.

Using a metaphor of a rugby game:

Refs are "impartial", by their very nature of not competing because they ARE impartial.

Once you remove that, and have them compete alongside players (shareholder winning interests), they are partial because they are A PART to other players interests also.

Which would be like having the rugby player shirt, hidden underneath, a ref shirt. And another row of points. Team a, team b, and team ref. All vying for wins.

It's fake. This stuff is primary school people.

True change starts at the top.

Conflicts are based on specifics - the actual people in question. If the same people sit on an ever increasing number of sub-committees then nothing has actually changed. It is form over substance. For appearances only. The people in question have not let go of their power base and influence. People rarely do so willingly. Arguably the NZ market is too small and there are too many inter-connections for the NZX to self-regulate itself.

On a related point, NZX seeking to waive the 9 year tenure rule goes totally against global best practice principle that says after 9 years a non-executive should NOT be classified as independent.

Speaking of rugby. Furthermore. You should also treat this as a union.

So if there are breaches the first body deems ( nzx ) co directors have a no contest breach register for breaches in place, pre agreed at the time they list. This is a low damages cost. Like a slap on the hand. No lawyers. Money gets redistributed to non original shareholders. So for example, not meeting prospectus sales figures would be a good example of slap on hand here.

If they challenge it / deny it, they go to the next court, where the damages are more (if found guilty of breach by this court).

Finally, for serious breaches financially or morally, or denials of such accusations, this goes to the FMA with lawyers etc. Who would take it to NZ courts/sfo. Such as Hanover.

What you are doing here, is incentivizing to settle early. And it shouldn't be a big deal. More like a parking ticket. It shouldn't ruin reputations as the first court or significantly effect share price. The final court should though. For the "crooks".

There is FAR to much time and resources wasted on small/medium breaches that should really be incentivized to settle early through lower damages. And the nzx should have powers to protect shareholders with some form of clout, rather than meek "please explain" and no school detention.
They are a regulating authority after all.

Having dealt with the NZX first hand, it was just laughable to see their investigation and discipline process first hand. Very serious issues that I raised were proven to be correct and true, yet the punishment handed down to the parties concerned was laughable, and others were swept under the carpet (insider trading, theft of information between broking firms) .Only later did I discover what I thought was a plausible reason - multiple conflicts of interest with NZX staff members and people at the broking firm concerned.
All capped off by an aggressive phone call from the very top to back off - the whole thing was just a joke!
I only hope that things have changed for the better since my experience!

You should report that to the FMA.
That's serious.

Yes, it was very serious stuff at the time...not worth complaining to the FMA when one of the people concerned now works for them though!

The only confidence these self governing professional bodies give is to their members - confidence that public complaints and valid concerns will be buried.

Poacher gamekeeper scenario

Its like a bank having sales also manage risk....opps Hanover....

Big boys have mega bonus packages (more than Mr Dalton) & they wont put those at risk

Abano yet again! - See Radio NZ morning report today on this very same topic..

It seems the term 'conflict of interest' is poorly understood even by those who should know better.

Rather laughable that NZ calls itself corruption free when this sort of thing is going on.
Surely the relevant authority should take action!

The growing market perception of conflict of interest is no accident when you consider the way NZX has so called self-regulated itself with no transparency and accountability, save to itself and its seemingly self-serving directors and CEO.

The collapse of the finance companies, Plus SMS debacle, backdoor listing shenanigans and Grain dispute (while ex CEO was selling down his shares) - no questions asked by NZX, no follow up, not even one 'please explain' as far as one can remember - what else does the NZX and FMA want before action is taken?

Meanwhile, FMA or Commerce Commission may want to inquire into the monopoly charges and fees reflected in the obscene profits made by NZX - without any corresponding increase in service.

If PM had real banking experience & remotely cared about having real markets he could fix with a wave of his wand

This is like the self certifying / regulating builders of leaky homes - some other sucker bears the bill

1 - Can somebody please define the term 'conflict of interest '

2 - And how this definition might then apply to NZX

What are acceptable 'arrangements' and what are not?

Does the NYSE go about its business in the same way?

Go to ASX in Australia.

"Confidence in the operation of the companies within ASX Group is reinforced by the whole-of-market regulation undertaken by ASIC across all trading venues and clearing and settlement facilities, as well as the financial system stability oversight by the RBA of ASX’s clearing and settlement facilities. ASIC also supervises ASX’s own compliance with the ASX Listing Rules as a listed company.

Additional responsibility for regulation of the Australian financial system lies with Treasury and APRA. Together with ASIC and the RBA, these four entities comprise the Council of Financial Regulators in Australia."

In NZ, we have the NZX regulating itself!

And we can thank Simon Power, now Head of Westpac Private Bank to thank for the situation as he heeded the lobbying of then CEO Mark Weldon and the NZX directors. Was there anything to do with him then getting his directorships and job in the private sector?

Thanks for that NZXXX. Helpful. A very different approach in Australia. Some useful lessons and opportunities.

Everyone talks about NZX being conflicted but what about the fact the people assessing NZX at the FMA are all recently ex NZX people who worked in the regulation space? Its all way too connected - even for New Zealand its ridiculous. All sorts of axes to grind can it possibly be balanced and impartial with so much background noise, friendships (or the opposite as the case may be) etc?