NZ Markets Disciplinary Tribunal fined three companies last year

NZ Markets Disciplinary Tribunal chairwoman Rachael Reed, QC, says there are fewer cases but they are more complex.

Continuous disclosure by listed companies was the key problem the NZ Markets Disciplinary Tribunal had to tackle last year.

The tribunal – an independent body which determines whether there has been a breach of the NZX Market Rules and what penalties apply – received three referrals from NZX during 2017.

Two referrals involved a breach of continuous disclosure requirements, and the third involved a breach of the Derivatives Rules. All three matters were settled by the parties.

The tribunal, chaired by Rachael Reed, QC, notes the reduction in referrals over the past two years (there were four in 2016) reflects the adoption of the Infringement Notice regime in 2016.

This allows NZX Regulation to issue fines for minor breaches without referring to the tribunal – it issued three infringement notices in 2017.

However, while the number of cases the tribunal has dealt with last year has fallen, it says the level of complexity dealt with in each decision has increased.

It released details of the three cases settled last year.

One, reported here, was Veritas Investments’ failure to disclose material information about its Nosh subsidiary for more than two months.

The tribunal said Veritas had agreed on new loan terms with its banker ANZ on September 9 last year, requiring it to commit to the sale or closure of its Nosh grocery chain by January 15.

However, those terms were not disclosed to the market until December 14, 68 business days later, “following engagement by NZX Regulation.”

This cost Veritas a $55,000 fine, the tribunal and NZX’s costs, and a public censure.

Another case, served April 21 and determined September 1, involved an unnamed issuer.

The issuer had published full-year forecasts on several financial metrics, including earnings before interest, tax depreciation and amortisation (ebitda) and revenue. It later affirmed those forecasts at the start of the second-half of its financial year.

While its first-half performance was largely in line with expectations, financial performance at the beginning of the second half was significantly below expectations (due to events beyond the issuer’s control).

It published a market update following the end of its financial year, stating ebitda for the year would be lower than previously indicated but did not provide figures or an indication of how much it would deviate by.

When it released its result, there was a material deviation from the forecast ebitda and revenue.

Breach of regulation
NZX Regulation observed a price movement of between 5% and 10% and the volume of shares traded on the relevant dates were about four to six times higher than the average volume per day over the previous 12 months.

For breaching continuous disclosure rules, the company was ordered to pay $52,500 to the NZX Discipline Fund, the costs of the tribunal and NZX, and was privately reprimanded.

The third case related to a breach of the NZX Derivatives Market Rules, involving an unnamed trading participant.

This participant self-reported a breach after an employee, who was not an NZX accredited dealer, executed orders in the trading system.

While there was no evidence of an intention to breach the rules, the tribunal was concerned the employee involved did not consider whether the use was authorised and did not follow the trading participant’s internal policies and procedures.

The participant was ordered to pay $20,000 to the NZX Discipline Fund, and costs. It was privately reprimanded.

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