Securities Legislation Bill — In Committee 
Securities Legislation Bill — In Committee 
[Volume:634;Page:5465] 
Securities Legislation Bill 
In Committee 
Part 1 Amendments to Securities Acts 
The CHAIRPERSON (Hon Clem Simich) 
: The debate on Part 1 clauses 3 to 31 includes debate on schedules 1 and 2. 
PANSY WONG (National) 
: 
 National supports the Securities Legislation Bill and in the spirit of cooperation I hope the Minister in the chair the Hon Lianne Dalziel will consider accepting two of my amendments one to Part 1 and the other one to Part 2. My Part 1 amendment proposes to increase the authority for the Securities Commission to carry out functions so that the relationship and the role of both the Securities Commission and the stock exchange can be improved. 
During the financial review the Commerce Committee had an in-depth exchange with the Securities Commission. In September 2004 the Securities Commission completed an inquiry into the performance of the New Zealand Stock Exchange. The stock exchange declared in that year that Access Brokerage had defaulted under its participant rule and the exchange suspended it from trading. But it revealed a lot of confusion about the understanding of the front-line role of the stock exchange and whether it has a reporting function to the Securities Commission. 
Why did the joint monthly meeting not send an early detection warning that the compliance rules of the stock exchange or programme could have been improved? At the time we conducted our financial review we noted that the Securities Commission although it claimed that there is a working relationship between the two agencies seemed to be helpless in terms of getting the review programme completed. 
So my proposed amendment inserts new clause 3AA which would allow the Securities Commission “to keep under review the operation of the securities markets and to comment on those operations to the appropriate body or the Minister;”. That means that the Minister in the chair the Hon Lianne Dalziel could have an early warning sign from the Securities Commission if indeed that agency finds itself lacking in power or not able to take early action. 
I hope the Minister will look into that recommendation properly because the objective of the bill is supposedly to improve the confidence of investors in our capital markets so I think my proposal is going in the right direction. At the moment the Securities Commission and the securities stock exchange market are operating under a joint regulatory role. Although we agree that they can work in partnership one cannot help thinking that the Securities Commission is ultimately the agency that needs to know whether any breach is happening. Given the example of the way Australian authorities operate we believe we do not need to wait for another bill to be introduced into the Parliament. There is goodwill on both sides; we do want to increase investors’ confidence in the capital markets and I hope we could cooperate and support this amendment. 
I am pleased to see that the Minister seems to be discussing the issue with the officials. I am happy to accept further amendments but the spirit of this provision is to ensure that the Securities Commission does have that authority to review the operation of the securities market at all times and then comment on those operations and bring them to the attention of the Minister. We all know that a thriving capital market and securities market is indeed very important in order to ensure that investors have confidence. That would assist business to prosper. I am sure the stock exchange and the Securities Commission would welcome a proposal in that direction. So I am hoping the Minister will look kindly on this one. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I really would like to respond positively in the spirit of the way it has been presented—the Opposition is supporting this legislation and I am very grateful for that. I am a little bit concerned because I had only just seen the amendment but I refer the member to the existing section 10(1)(caa) in the Securities Act which states that one of the functions of the commission shall be “to keep under review activities on securities markets and to comment on those activities to the appropriate body; and (cab) on the Minister’s request to advise the Minister on the conduct rules or amendments to those rules proposed by securities exchanges;”. 
The member seems to think there is a difference between the word “activities” and the word “operation” and I actually think that the language of the existing Act is broad enough to pick up on those points. But I would like to say that I felt the Commerce Committee members handled that matter particularly well when they looked at the financial review of the Securities Commission and I felt that the Securities Commission explained itself particularly well in its annual report which has just recently been tabled. It did explain that it was very difficult that at the time it was developing that early relationship with the stock exchange for the co-regulatory regime to work there was the Access Brokerage case which it then had to deal with and set aside the time it was spending on developing that relationship. As soon as the Access Brokerage decision came out the Securities Commission was quite clear and acknowledged that the stock exchange had changed some of its practices and procedures as a result of Access Brokerage and then it was able to move on. The relationship has developed very well ever since that time. So I am very pleased that the member has raised that point. 
I do not think the amendment to the legislation is necessary because the Securities Commission has that ability to review activities on securities markets and that is indeed the function it is carrying out very well now. 
BRIAN CONNELL (National—Rakaia) 
: 
 I will start by saying to the Minister in the chair the Hon Lianne Dalziel that I am bitterly disappointed to come to the Chamber this evening to find that two Supplementary Order Papers have been tabled. I say that I think that makes it very difficult to have informed debate about legislation that should otherwise have the full attention and understanding of those who are debating the issues. The select committee process was very rigorous—and at times vigorous—but to find that there are now two Supplementary Order Papers one 3 pages long and the other 14 pages long I think is simply unacceptable. 
Having said that let me turn my attention to the body of the bill. Because it has been some time since it came out of the Commerce Committee—in fact it was in the last Parliament—let me take a moment to recap what the bill is trying to do. 
The Securities Legislation Bill is an omnibus bill containing amendments to the Securities Act 1978 the Securities Markets Act 1988 the Takeovers Act 1993 and the Takeovers Code. The main aim of the bill is to increase confidence in New Zealand’s capital markets. The National Party accepts that as being conceptually sound but as this debate proceeds I will draw the Committee’s attention to some concerns I have about the way the bill is framed because I think it may actually work against that lofty objective and may in fact stifle the flow of capital into and throughout New Zealand. 
For the sake of the Committee’s accuracy I say that this bill has three important changes. One is the restructure of the current insider-trading regime and I will come back and talk about that in some detail. The second is amendments to the disclosure regime required of substantial securities holders which I agree with and the third is increase of disclosures of advisers and brokers which is again something I agree with provided that it does not become too burdensome. 
One issue worth noting is the proposed market manipulation provisions which is a concern I raised both in my first reading speech and in my second reading speech in this House. Those provisions have been dropped. I made the point at the time and I think the argument held sway in the select committee that market manipulation enforcement is notoriously hard to nail home so I think common sense has prevailed. 
Of more important note is the component relating to insider trading. The bill expands the present civil liability to include in appropriate cases criminal liability. Additionally the concept of an insider has been expanded to include any person who has inside information regardless of its origins. Critics—and I am one of those—say that this could discourage directors and employees from owning shares including incentive shares or schemes. That is an issue that I raised in the course of the second reading and is a view I still hold very strongly. I think that rather than enhance capital flows into this country or through our capital markets we might create an environment where people become so risk-averse that they may find markets in other jurisdictions more attractive. 
Throughout the course of the select committee discussions I was concerned to avoid the creation of a regulatory regime that would stifle our capital markets in the pursuit of one or two crooks. I was at pains to point out then and I will do it again now that I do not want to see anyone who is engaged in insider trading getting away unscathed. At the same time I do not want—and I know the Minister is cognisant of this—to create an environment that also scares people from engaging in the pursuit of legitimate activities. What we particularly do not want to do is to stifle initiative. 
I draw members’ attention to one or two examples and ask them to contemplate the argument I am putting forward. Is it insider information if a bright young thing uses his or her initiative and through his or her own inquiries determines that an enterprise is worth pursuing and putting some money into? A case in point might be someone taking a packed lunch and a pair of binoculars and looking over the Auckland Christchurch or Wellington wharves. They see the activity of a particular company and how that company is increasing its importation of goods for sale in this country. On the back of the company’s retail success that person invests heavily in that stock. Is that insider trading or is that information that any bright young thing could have had at his or her disposal? If that person then passes that information on to clients on the back of his or her own endeavours in my view that is information anyone in the community who had put in the hard yards could have had access to. That is a very strong concern I hold and on reading this bill I am not sure that the select committee has yet addressed that issue. Maybe the Minister would be good enough to take a call and give me some assurance that she is satisfied that will not happen. 
The other issue that bothers me is that we are relying heavily on the Australian example in terms of basing our legislation on Australia’s. Having spent the best part of my corporate career in Australia I can say to the House that having a tougher law in itself will not be the panacea if the resources are not there to enforce the legislation. I caution the House that what we need are resources to police as opposed to more restrictive legislation. I would go as far as to argue that if we had better enforcement now this legislation in itself may not be necessary. Certainly in my time in Australia there were one or two very high profile convictions. But I have to say that for every conviction that was made there were probably 50 that failed. What it certainly did in Australia was to make people risk-averse. 
The last issue I want to address in this call is the issue of banning orders. For those who wonder what banning orders are they are essentially a mechanism to ban managers—directors of companies—from being involved in those activities if they are found to be in breach of the regulations. When this bill was first drafted I thought the banning orders were punitive and would apply to everyone regardless of what the breach was. Through the good work of the select committee—and I commend my select committee colleagues for the work they did and the officials for listening and redrafting this component—people will be banned from management and directorships if they are found to be in breach of serious misconduct. This is quite different from people making an inadvertent mistake. At the time I was concerned about managers involved in minor misdemeanours. I am glad to say that concern has been removed. In my view it was going to drive people away from taking on executive management positions or directorships and it would have certainly spelt an end to share schemes. 
With those point made I am looking forward to having a very vigorous debate throughout the evening over the Securities Legislation Bill. It is very complex legislation and runs to something like 182 pages. I do not want to labour the point with the Minister but I will end where I began by saying I am very disappointed that Supplementary Order Papers have been tabled today given that the select committee worked its way through 182 pages of original legislation. It would be useful to understand exactly what those Supplementary Order Papers intend to accomplish. 
CHRIS AUCHINVOLE (National) 
: 
 The purpose of the Securities Legislation Bill is to increase confidence in New Zealand’s capital markets. Let us look at the basic structure of securities and how that fits with this bill. I note that National is supporting the bill. It is an omnibus bill and therefore it contains amendments to the existing Securities Act 1978 the Securities Markets Act 1988 the Takeovers Act 1993 and the Takeovers Code. The main aim of the bill is to increase confidence in New Zealand’s capital markets. 
Securities are often related to bonds—an exchange of stated trust. How familiar are we with that expression: “My word is my bond.”? Throughout commercial history business people have been judged on the efficacy of their word. Oh that that was still a valid currency! 
Having had 1 year in Parliament I have found it to be a remarkably rewarding experience in terms of being part of the hub of the wheel. However if I am permitted to be slightly critical of the procedures of the current Government I would have to question the way that questions are answered in question time—or perhaps I could say that I question the truth or answer avoidance that occurs during that time. How that can instil confidence and trust leaves me be. 
So what security can we have as a country? What do we each represent? I guess there are three effective measurements: ethics—what we believe in; confidence—what other people believe about us; and integrity—what we believe about ourselves. I am still struck by the saying of President Harry Truman: “The buck stops here.” 
Hone Harawira 
: Harry Truman. 
CHRIS AUCHINVOLE 
: Harry Truman that is right. In the Securities Legislation Bill—[ 
Interruption 
] Some of these things I say to Hone are timeless. Indeed a breach of trust is equally timeless—it is not easily forgotten. 
With the Securities Legislation Bill it is important to determine where the buck stops and it is important to make sure that that is a known place. This is necessary for confidence in the country’s capital markets. Confidence is so necessary and it is something we all have to contribute to. I have had the opportunity to deal with overseas interests. I have operated a joint-venture company with overseas interests and I am aware of some of the measurements used in determining how much confidence can be placed in New Zealand business. I am delighted to say that when I established the company in the 1970s there was a very high understanding of New Zealand’s integrity. There was a high level of appreciation of New Zealand’s sense of ethics. Word was that when a New Zealander said he or she would do something it was believed the person would do so. 
The confidence other people have— 
Peter Brown 
: And then came the National Party! 
CHRIS AUCHINVOLE 
:—and the confidence that is based on the way we behave I say to Mr Brown is reflected in the saying: “By our work we will be known.” I think the National Party and National Governments have an unparalleled record in stimulating the confidence of people from other countries in the way we behave. 
Then we can measure integrity—the belief in oneself. I like to think as a businessman that these lines on my face are not just laugh lines; nothing could be quite that funny. I like to think that I have been through the mill a little bit—as has my colleague “Bob the Builder” and as have my other National Party colleagues who have been involved in business. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I was hoping there would be other things I could respond to but I will go back to Brian Connell’s speech which raised a couple of points that I ought to respond to. 
The first point Brian Connell raised was about new section 8A “Who is information insider” which is proposed to be inserted by clause 21 of the bill. He raised questions about insider trading including who an information insider is and whether “material information relating to the public issuer that is not generally available to the market;” would be caught by his example of some bright young market analyst who goes with binoculars to take a vantage point overlooking the activities of the Auckland wharf—this was the example he used in his second reading speech and has repeated again tonight. 
In order to find the answer to that question we really have to go to new section 4 of the bill which is proposed to be inserted by clause 20. New section 4(1)(a) talks about information being generally available to the market if “(i) it is information that has been made known in a manner that would or would be likely to bring it to the attention of persons who commonly invest in relevant securities; and (ii) since it was made known a reasonable period for it to be disseminated among those persons has expired; or (b) if it is likely that persons who commonly invest in relevant securities can readily obtain the information (whether by observation use of expertise purchase from other persons or any other means); or (c) if it is information that consists of deductions conclusions or inferences made or drawn from either or both of the kinds of information referred to in paragraphs (a) and (b).” That new section makes it clear that the example the member uses would not be caught by the insider trading provision. I would like to offer him that assurance. 
The second question Brian Connell raised was about Supplementary Order Paper 59 which makes a number of relatively minor amendments to Part 1. A number of those amendments were brought up with officials by the financial services industry after the bill had been reported back from the Commerce Committee. So we have been working on the Supplementary Order Paper for quite some time. It is not an ideal circumstance but the bill had already been reported back from the select committee there had been a general election between times and in the meantime we had been talking to various market participants about this particular Supplementary Order Paper. 
I will quickly run through the key changes to Part 1. It ensures that capital market advisers are not caught by insider trading or continuous disclosure provisions of the bill providing they are legitimately advising their client on its own activities. I think that was a partial question that the member raised. It extends the time period for bringing civil proceedings from 2 years to 3 years to enable the Securities Commission and others to have sufficient time to detect and investigate behaviour before bringing proceedings. It clarifies that the Securities Commission can recover its actual costs rather than court costs where it brings a successful civil pecuniary penalty proceeding. It requires investment advisers only to disclose to a potential client an adverse finding against it by a court not an adverse finding by a disciplinary body. When we worked through that issue we thought some relatively minor breaches could bring an individual in front of a disciplinary body. If that individual had to disclose each breach then he or she may not join what are voluntary bodies and we thought that that might somewhat minimise what we were trying to gain by the passage of this legislation. 
A couple of other minor technical amendments ensure the overall efficacy of the bill and ensure there is a greater consistency of approach across other pieces of legislation. 
CRAIG FOSS (National—Tukituki) 
: 
 I thank the Minister for clarifying those matters and I endorse the goodwill that seems to be around this Securities Legislation Bill here and in the Commerce Committee even though it was over quite some time. National is supporting this bill. It was interesting to pick up on the point that Mr Brian Connell made about the two Supplementary Order Papers. Last time I spoke to a bill like this—the KiwiSaver Bill 2 weeks ago—a couple of key Supplementary Order Papers were launched in the Committee. The democratic process was somewhat abused in my opinion in that fundamental changes were introduced to a bill at the last minute. Having said that I freely admit that the changes in these Supplementary Order Papers are not quite as fundamental. 
I would like to declare a personal interest as we speak about some of the insider-trading matters not that I have insider traded but I have traded securities in New Zealand Singapore London Australia Tokyo New York Hong Kong and also most interestingly as far as insider-trading stuff goes in the emerging markets when the Soviet Union broke up and particularly also with South America and the Indonesian states. If we think we have a need for this legislation in New Zealand my goodness gracious once one gets involved in some of those markets with their various versions of insider trading “bauble” exchange if you like cash for favours and cash for questions it is endless. I make that point because in all those countries they of course did have securities legislation. The key is the teeth and the appetite to enforce the legislation or the punishments and enforcing the boundaries that surround it. 
My colleague Mr Chris Auchinvole the next West Coast MP made some very good points. In fact it is interesting; why do we need this legislation? Sadly yes there was a time when one’s handshake was one’s bond and that was one’s pledge. For example the pledge card could be an interesting example of why we need such legislation or proactively in the internationalisation of share markets securities and financial markets we need robust legislation ongoing and work-in-progress legislation if you like to keep us in tune with the rest of the world. 
I would make one more point—whatever gets passed in the Chamber sadly we will have examples again of dodgy behaviour shareholders being ripped off and investors being ripped off by unscrupulous individuals. I guess we will have some further legislation once that arrives. In particular the arrival of the Internet and the ability to share trade in unregulated environments—particularly in some of the emerging Asian countries with all that goes on there—has created ripe opportunity for further abuse sadly of people’s goodwill. There are a few recent examples. Some are currently in the headlines. We have an issue around the recent fall in the Feltex share price and the issues around the Feltex company when it was floated versus where the share price is now and who knew what and was it just the market or did some people know more than others and did they let on more than others? Did they deal within the law or the spirit of the law or the word of the law? 
 Interestingly another example where there was very very robust legislation was around the Enron debacle in the United States a few years ago. I am sure members remember that that debacle brought down the great accounting company Arthur Andersen and Co. Again the United States had more robust legislation probably than New Zealand will ever have yet again unscrupulous individuals managed to exploit the system tunnel right in and sadly the auditing sector of the market was never the same again. 
We recently had an interesting example in New Zealand over the allegations around Telecom and the leaking of insider information in respect of what the Government proposed to do with the unbundling. Regardless of the merits of that we saw quite openly the impact someone can have if that person has a key piece of information and is about to short-sell into a market. From memory that leak wiped about $2.5 billion off the market value of Telecom which was—and probably still is—New Zealand’s largest telecommunications company. Thank you Mr Chairman. 
DAVE HEREORA (Labour) 
: 
 I move  
That the question be now put 
. 
Hon Members 
: Part 1 is huge! 
The CHAIRPERSON (Hon Clem Simich) 
: Yes Part 1 is a very big part—it is huge. I call Tim Roper. I apologise to the member—Tim Groser. 
TIM GROSER (National) 
: 
 Mr Chairman if you had a name like mine and you had a dollar for every time it had been misspelt or mispronounced you would be a rich man so I take no offence. 
I rise to take a call to support the Securities Legislation Bill. I am well aware that the bill had been in front of the House for a number of years prior to my arrival. Unfortunately I have not unlike some of my colleagues had personal experience in dealing with securities but I have had a long interest in economic reform and I recognise that this bill addresses some issues in that area and is therefore worth supporting from that perspective alone. 
I am well aware of—and I think we have had increasing debate in this country on—the thinness of our capital markets. I am well aware that those capital markets are vital not only to establish New Zealand companies but to benefit new companies that have gone beyond the mezzanine and angel financing stages and are looking at initial public offerings. I am well aware of a recent Ernst and Young study that placed—unfortunately as an illustration of the weakness of our capital markets—New Zealand 21st out of 22 OECD countries in 2005 in terms of the funds raised through initial public offerings. I think the parties in this Chamber recognise that we have a structural problem in this country and the cleaning out by some Australian companies of some of our more successful emerging companies is itself unfortunately an illustration of our need to address some of those weaknesses as best we can. The bill is worth supporting as one move in that direction because it is perfectly obvious that the public’s confidence in our capital markets legislation is a component in it. The public can get burnt off capital markets for any number of reasons including of course the public’s own inappropriate decisions. But if there is a widespread belief in the malfeasance of markets that is something that is within the control of the authorities and we should move to do what we can to put in place the measures necessary for the public to have confidence in the integrity of the markets. 
I have to say however that on all of these issues there is a first test that one has to apply and that is to establish whether there is a problem and if there is to find out how large it is and what the costs and benefits are of fixing it. I remain a little bit unconvinced by the argument that our having had no prosecutions in the last 5 to 10 years proves there is a problem. I ask members to just look at the matter intellectually. As far as I know for example the authorities have not captured recently a single live ferret in Wainuiomata. I am not quite sure what that proves. It could prove that the authorities do not have the Taser guns necessary for the task or it could establish that there is not a problem with live ferrets and therefore the good denizens of Wainuiomata have nothing to fear; I am not quite sure what it proves. So I do not think the absence of prosecutions per se is particularly convincing proof that we have a pervasive difficulty in this area. It would be naive to imagine that in the last 10 years there have not been in the capital markets of New Zealand people who have gone well beyond what I would call sharp practices towards engaging in some very dodgy activities. But I start from the somewhat more optimistic assumption on matters of this nature that there is a fairly high level of integrity in New Zealand. I do not think there is even anecdotal evidence that suggests—a few obvious examples aside—that we are dealing here with a large problem. 
Therefore the policy implication that I would draw as somebody coming to this debate fresh is that we should look quite critically at some of these provisions support them in terms of their general direction but regard this legislation frankly as a work in progress. Obviously this bill does some positive things including the tidying up of the provisions for the three relevant bodies the Securities Commission the Takeovers Panel and the Commerce Commission that are responsible for ensuring that deceptive practices are not left undetected. It is very sensible that the bill establishes procedures for the proper exchange of information between those regulatory authorities. 
Equally it is very sensible that the legislation tidies up provisions to ensure that the considerably enhanced penalty provisions apply only to serious offences. I am not quite sure which adjective I would use to delineate those offences from other offences but let us use the term for want of something better “technical offences”. Those are very considerable penalties and I think the issue of proportionality arises here so it is sensible that the bill addresses that. Equally it is sensible that the bill contains provisions to avoid what I call “forum-shopping”. I am not quite sure whether that is a term one uses in this realm of public policy but it concerns the ability of litigants to look around for alternative forums to pursue endless litigation—in this case conducting private prosecutions under the provisions of both the Fair Trading Act and the Securities Markets Act. It is sensible that we are tidying up this provision. So I put these provisions down as good housekeeping and well worth supporting. 
But what worries me—and I think Mr Connell and Mr Foss touched on this—are the illustrations of that old enemy of legislation the law of unintended effects. Having worked in the public sector for 30 years I am deeply conscious of the dangers of putting in place compliance regimes and management systems that encourage deeply risk-averse behaviour. I remember when I was a junior investigating officer in Treasury more years ago than I am prepared to admit— 
Hon Members 
: Tell us! 
TIM GROSER 
: I will tell members in private. It was pointed out to me that a certain very senior Treasury official—and I am not referring to that great public servant Henry Lang—had sat in his office at a very senior level in the New Zealand Treasury and for 30 years he had never approved a single departmental expenditure proposal had never put forward an initiative on his own and had said no to everything that had crossed his desk. So I know all about risk-averse activity and its great cost to the public sector. I guess what I am worried about if we apply the law of unintended effects here—and I have listened carefully tonight to the helpful explanations of the Minister the Hon Lianne Dalziel on some related points—is that here we are dealing with something that is at the cutting edge of private sector entrepreneurial activity; we want to ensure that due attention is paid to risk but we do not want to put in place compliance regimes that are actually completely counter to the underlying purpose of having capital markets in the first place. 
Mr Connell and Mr Foss have addressed some of those issues including the definitions of insider trading and the tests that are generally available to the market—the evidentiary tests. The Minister has given us a view that is interesting but I have to say that I have some reservations about this and I have some reservations about the enforcement policy. Although National supports this bill we should regard it as a complex piece of Government machinery that is very much a work in progress. Thank you. 
RUSSELL FAIRBROTHER (Labour) 
: 
 I move  
That the question be now put 
. 
The CHAIRPERSON (Ann Hartley) 
: No. This is a large part and there are still people debating the issues. 
PANSY WONG (National) 
: 
 Thank you Madam Chairperson—we really appreciate that you have reminded the Labour MP that this Part 1 is two-thirds of this bill. I suggest he uses his spare time to do a good thorough going over of Part 1. We still have a lot of issues we want to raise. I want to go on to discuss the insider-trading provision plus the investment advisers disclosure law. I want to echo the concerns raised by both of the previous National speakers. I appreciate that the Minister is taking calls—she might like to give us some assurance. 
I want to share a case. There is a credit card technology company—an Eftpos maker—that used to be known as Advantage Ltd and has changed its name to Provenco. In May 2003 Provenco conducted an on-market buy-back of $4.2 million of its own ordinary shares paying $1.4 million. The Securities Commission considered that the defendants received insider information about the future earning of the business. This case dragged on for a year and eventually the Securities Commission and the company came to a settlement whereby the company agreed to pay $622000. In the meantime the business had taken off and the company was doing very well. Both the Securities Commission and the company had come to this sensible settlement; both sides acknowledged that dragging on would not actually generate additional benefit. 
This case has reminded us that under the existing securities legislation insider information can be detected and dealt with. I hope the Minister will take a call and maybe alert us to additional problems that she felt necessitated the tightening up of the existing legislation. There is a balance to be struck. If we want businesses to thrive they have to take risks. My colleagues correctly questioned whether we are tightening the net too much; are we actually trying to correct the problem with too big a tool? Does this send the right type of message to the Securities Commission and does it send the necessary incentive to potential investors to invest in our market? 
The other important issue I raise is that I wish the Minister would share with us why it took a whole year for this legislation to be reported back to the House when National supported it. It contained a very important provision in Part 1: the disclosure by investment advisers. I want to share with the public the following very sad case. Recently three very high-profile finance companies went into liquidation. Let me share the saga of Provincial Finance Ltd. After it withdrew its prospectus on 10 April $9.5 million of investors’ funds were poured into that failed company. That suggests to us that there is some serious problem and that investors are not getting good advice or are not getting information. National definitely welcomes the provisions in Part 1 that enforce more disclosure by the investment advisers. Investment advisers will now have to disclose for example their qualifications their experience whether they are a member of a professional body and whether they have professional indemnity insurance. 
Investment advisers must also disclose whether they have certain criminal convictions. When a company withdraws its prospectus and $9.5 million of investors’ funds finds its way into the failed company it certainly suggests there is a market failure. I really want the Minister to take a call to tell us why she waited a whole year to bring back this legislation. 
BRIAN CONNELL (National—Rakaia) 
: 
 I start by thanking the Minister in the chair Lianne Dalziel for her willingness to get to her feet to clarify questions that have been put to her. 
Simon Power 
: She’s good like that. 
BRIAN CONNELL 
: She is proving to be very good like that this evening. I also say to the Minister as regards my argument around the Supplementary Order Papers that it was not the substance of the Supplementary Order Papers I was concerned about but rather the timing with which they were tabled. I was concerned that without having the opportunity to read those Supplementary Order Papers in detail it was hard to make a significant contribution to the debate. Now that I have had the opportunity to read them I agree with the Minister that they are warranted. I accept they have come from financial markets and institutions and that is quite legitimate. My point is just around timing. 
The other issue the Minister responded to was my question around insider trading and the concept of an insider being expanded to include any person who has inside information regardless of its origins. That is why I went to some trouble to give the example I did; it was to do with the origins of that information. The bill still states that insider liability has been expanded to any person who has inside information regardless of its origins. 
I now go to another component of the bill. In my discussions with submitters to the Commerce Committee I found that they still have some concern with new section 4 to be inserted in the Securities Markets Act by clause 20. They say that section 4(1)(a)(ii) which will prevent those with insider information from trading until a reasonable period has passed for it to be disseminated is inconsistent with section 4(1)(b) and that the matter will probably be left to the courts to distinguish. The problem has occurred in Australian legislation on which this provision is based. 
I say to the Minister with the best will in the world that I think this is a flaw in the drafting of the legislation. If submitters to the select committee still feel in subsequent discussions that this issue is left open to interpretation then I think that is a problem. Now that we are going through the Committee stage and trying to draft legislation I think we should try to get it as right as we possibly can. So I leave that issue with the Minister and ask whether she would be good enough to talk to her advisers and maybe come back to the debate with some response. If she could give me some satisfaction that that issue has been clarified I would be grateful. 
The other area that concerns me is that when preparing a takeover involving third-party consultants there is no defence provided to those consultants for the inside information they obtain through due diligence. It is standard practice in any takeover or acquisition to involve a due diligence team and how inside information is treated in that situation is an issue for debate. Again I seek the Minister’s indulgence and ask her to speak to her officials and to give the Committee some satisfaction that that issue has been canvassed as well. 
We should comment on the issue of additional disclosure for advisers and brokers as well. Those offering investment advice are now required to disclose qualifications experience professional standing criminal convictions and most important any relationship that would influence their advice. It is my view that most advisers do that now. What this legislation will not do though is protect the unwitting public from those people who are crooks or who have a criminal intention. Having as advisers people who are well-trained or well-qualified but who do not have good intent will not protect the investing public. That issue still concerns me. 
I can see that compliance costs will have to be built into investment companies because people will have to get qualifications where generally I think quality advice is being given now and there have been no incidents where those particular organisations have given bad advice. So I think the Minister should look at this issue. 
Hon JUDITH TIZARD (Minister of Consumer Affairs) 
: 
 I move  
That the question be now put 
. 
PANSY WONG (National) 
: 
 I would like to continue the debate surrounding disclosure by investment advisers because I was very disappointed that the Minister in the chair Lianne Dalziel who had been very good in taking the call suddenly stopped doing so. I am still wondering why this bill which was reported back to the House late last year is still only at the Committee stage. People would really benefit from this additional disclosure and we can share with them piles of information about what happens in Australia. The chairman of one failed financial company Provincial Finance went over to Australia and started a finance company to try to raise funds over there. The Australian agency the Australian Securities and Investment Commission is right up with the task. Its spokeswoman says that it is chasing disclosure in relation to that company. She said: “I can say that we are concerned to ensure that investors are provided with all the information required to make an informed decision.” So the Australians are very effective in trying to protect their investors. 
I think the Minister should take a call and explain to the Committee why provision for disclosure by investment advisers took 1 whole year to get to this stage. I would also like her to share with us how quickly the second part of the regulation relating to investment advisers will take place. My colleague Brian Connell has just been saying that disclosure is fine and that a lot of people disclose their information. But the public has a right to know that people calling themselves investment advisers do actually belong to a professional body—that there are regulations and that somebody is checking their qualifications—to ensure a level of comfort. 
Or does the delay have something to do with the extension of the definition of what constitutes insider trading? I understand that the definition of “information insider” has now been extended to: “A person is an information insider of a public issuer if that person—(a) has material information relating to the public issuer that is not generally available to the market; and (b) knows or ought reasonably to know that the information is material information;”. There was some speculation about whether the Hon David Cunliffe when he was under investigation by the Securities Commission for speculating about the future dividend policy of Telecom would be caught under this new extended definition of “information insider”. Now that his case has been closed we have suddenly seen this bill find its way into the Committee stage. If that is the case it is not fair. 
The public has a right to get protection as soon as a problem is detected. There have been three very high-profile collapses of finance companies and we are being told there are still more on the way. A lot of finance companies engage in the financing of second-hand cars and with the economy starting to slow down—we are now looking at 2 percent growth—people are suddenly finding themselves unable to meet their payments. So I think there are more collapses of finance companies under way. 
Personally I would like to see this bill pass through all its stages a.s.a.p. but we also urge the Minister to fast-track the regulation of investment advisers because unless we can instil public confidence then our capital market will not thrive.  
Hon DAVID BENSON-POPE (Minister for Social Development and Employment) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 71 
New Zealand Labour 50; New Zealand First 7; Green Party 6; Maori Party 4; United Future 3; Progressive 1. 
Noes 48 
New Zealand National 48. 
Motion agreed to. 
The question was put that the following amendment in the name of Pansy Wong be agreed to: 
to insert the following new clause: 
3AANew subsection 10(caaa) inserted 
The principal Act is amended by inserting after subsection 10(caa) the following subsection: 
10(caaa) 
to keep under review the operation of the securities markets and to comment on those operations to the appropriate body or the Minister; and.  
A party vote was called for on the question  
That the amendment be agreed to 
Ayes 48 
New Zealand National 48. 
Noes 71 
New Zealand Labour 50; New Zealand First 7; Green Party 6; Maori Party 4; United Future 3; Progressive 1. 
Amendment not agreed to. 
The question was put that the amendments set out on Supplementary Order Paper 59 in the name of the Hon Lianne Dalziel to Part 1 be agreed to. 
Amendments agreed to. 
Part 1 as amended agreed to. 
Part 2 Amendments to takeovers legislation 
PANSY WONG (National) 
: 
 Part 2 amends takeovers legislation and I hope that the Minister once again in the spirit of cooperation will consider my amendment to this part. We have heard reported high-profile cases where company mergers try to sidestep the Takeovers Panel and use the restructuring provision in the Companies Act. I am trying to be helpful in saying that we do not need to wait for another piece of legislation to be introduced to the House and taking a few years to go through the first reading the select committee process etc. It seems to me that all the commentators agree that a company in a takeover situation should be dealt with by the Takeovers Panel. 
My amendment proposes that the panel using the stated criteria should have the authority to decide whether a takeover should come before the Takeovers Panel and also rule out mergers when companies are structured for the purpose of avoiding their coming before the Takeovers Panel. In doing so the Takeovers Panel would consider whether the same result would be achieved if it were a takeover whether there was a legitimate commercial purpose in preferring the merger and whether there was a key feature of the merger that could not have been achieved through the use of the takeover mechanism. Key features could include a reduction of capital an amendment of the target’s constitution a variation of the terms of options or convertible securities or an acquisition of more than one class of share by a single procedure. The provision is largely taken from the Australian takeover legislation because I guess in the spirit of closer economic cooperation a lot of our commerce etc. is moving to standardisation with Australia’s. 
It seems to me that those are sensible amendments to avoid company restructures where their purpose is simply to avoid being interpreted as a takeover. National is in a mood of full cooperation and I think that if the Minister has a discussion with her officials she is indicating that they are considering it well the Government is considering my amendments. I always say that if something is worth doing why do we not grasp the opportunity and accept those amendments. We have time; in the next hour or so we can look further through the individual provisions. But it seems to me that we should not tolerate a business that would restructure solely to avoid coming under the Takeovers Code. 
So far we have not really seen too many complaints against the Takeovers Code and the fact is that Part 2 will make further amendments to improve it. It seems to me that businesses should not be allowed to circumvent that issue and obviously I am looking forward to a contribution from my colleague Brian Connell to assure us that Part 2 the amendments we are now debating will improve the Takeovers Code. Maybe the amendments that I am proposing now will help further the working of this legislation. So I am positive and hopeful that the Minister will start to look into those amendments. 
In talking about this takeover I say that we are also pleased that there is a proposal in this legislation that the Commerce Commission the Securities Commission and the Takeovers Panel will sensibly share some of that information to ensure that our legislation regarding the operation of the capital market and security market will work very well. I think we endorse those three agencies to work in a cooperative manner. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 Yes I did have the time to have a look at Pansy Wong’s proposed amendment but I do not think the amendment she is proposing would do what she wants it to do. I want to give some background to it. 
The Takeovers Panel decided to go out and consult on what it felt was a problem in relation to schemes of arrangement and amalgamations under the Companies Act and the Takeovers Act. Interestingly both of those pieces of legislation were passed in 1993 so the Government of the day did intend for different rules to apply and specifically allowed for schemes of arrangement under the Companies Act. I do not think that an amendment moved on the night as the bill is going through the Committee is a good way of resolving this. I know that the member has chosen to take up the Australian language but unfortunately that does not resolve the fact that the Companies Act still has the other provisions within it. So the inclusion of this within the Takeovers Act would not actually stop what has been occurring from occurring again. 
The Takeovers Panel heard submissions over a 10-day period. That—even with my Small Business Advisory Group representational role—is not long enough to actually qualify as the level of stakeholder input required to make the changes that need to be made. My officials are certainly looking at the report that I received from the chair of the Takeovers Panel probably a fortnight or 3 weeks ago—it was not very long ago—and I understand there is to be a report to the select committee that is looking at the Business Law Reform Bill because the Takeovers Panel made a submission on the Business Law Reform Bill at the same time that it provided me with its results of its consideration of the subject matter. 
So it is not that I am unsympathetic to the issue; I think the issue does need to be resolved. But I do not believe that an amendment to the Business Law Reform Bill—which tragically I have already been told would be out of the scope of the bill anyway and that is not a decision I get to have any say over—is appropriate. On the other hand dealing with it in this way would not be appropriate either. I am glad the member feels that there is an issue that needs to be addressed. 
We want to go through a proper process now with the Takeovers Panel recommendations. I should say that the Takeovers Panel did not get unanimity from the community sector. Some felt it was too much to leave it entirely within the jurisdiction of the Takeovers Panel and some felt that the Takeovers Panel recommendation that it be heard by the High Court in the consideration of schemes of arrangement would in fact resolve the problem. So I think we have a wee way to go before the issue is resolved one way or the other but I thank the member for raising it in the spirit that she has. 
CRAIG FOSS (National—Tukituki) 
: 
 In continuing what we spoke of earlier I look forward to a speech from the Maori Party on this Securities Legislation Bill. I would be interested to hear its members’ thoughts on what was perhaps New Zealand’s earliest—perhaps even founding—piece of securities legislation which of course was the Treaty of Waitangi. So I look forward to 10 minutes on that one as we go through the night. I would also be interested in hearing that party’s opinions—and in fact the opinions of more members on the Labour side—of the securities legislation particularly the takeover side. I notice that members of United Future have obviously been through takeovers with their takeover of various small parties etc. I would be interested in seeing it in that context which is a bit from left field I appreciate but it is always worth looking at issues from the point of view of the other side. 
Takeovers equity markets and financial markets all have to operate in an environment of confidence and total transparency and with a free and full flow of information to all parties concerned—regardless of whether or not they have a stake—and in an environment full of integrity where as earlier speakers have said a handshake is as good as a bond. Yes that has to be backed up by legislation; I think we have 182 pages of legislation here plus two Supplementary Order Papers and plus the amendment that my colleague Pansy Wong is putting together. But confidence transparency and certainty are what financial markets are all about. Commitments must be delivered upon when promises have been made and consideration given. When I spoke earlier I touched on the pledge card. I would be interested to examine that in these circumstances but of course it is outside the realm of this bill. 
New Zealand is part of an international global capital market. We are talking about equity takeovers here and we talk about New Zealand and Australia in particular but we are only 2 percent of the world equity markets—only 2 percent. I find that interesting given that the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill which is currently before the Finance and Expenditure Committee actually disincentivises New Zealand from going to 98 percent of the world’s equity market and encourages us—in fact essentially gives us a tax incentive—to operate within only 2 percent of the world’s equity market. 
Under this takeovers part of the bill many of those new entities that now have to be KiwiSaver-compliant will also have to deal under the taxation bill as it was prior to the suggestions and the changes the Minister of Finance announced the other day which were thrust upon us. They will also have to deal within the new certainty and the transparency that this bill will give. 
The incoming National Government will of course need robust and strong capital markets. As we are supporting this bill on its way through we will endorse it to help create the parameters we need to help New Zealand grow. The earlier part of the bill touched on insider trading. I realise that we are on to Part 2 now. I think the world has moved on an awful lot. As I mentioned earlier sadly and unfortunately problems will still happen. People will still deal outside the spirit of this legislation. 
I note that the Minister of Commerce and earlier speakers also mentioned that we are getting closer to the Australian examples. We are following its lead perhaps hand in hand around certain law on this issue. Of course being a good Hawke’s Bay MP I make the point that our apples are still not allowed into Australia. Hopefully one day our agricultural markets will follow our business tax law and our commercial law. Interestingly I think this convergence with Australia is a debate that New Zealand is yet to have. Almost every bill that is coming before the Commerce Committee and the Finance and Expenditure Committee touches on a closer economic relation with Australia. Of course we all know about Closer Economic Relations but the back office of New Zealand is starting to resemble another state of Australia. This bill is part of a portfolio of changes that the current Government is bringing through. There is this bill the Reserve Bank of New Zealand Amendment Bill taxation legislation and the Westpac New Zealand Bill that was passed the other night. All of those bills have a common theme of New Zealand getting closer to Australia with convergence of back office legislation etc. On its own I do not have a problem with that. But I do have a problem when that debate is not out in the public arena. 
BRIAN CONNELL (National—Rakaia) 
: 
 I will start by asking this question albeit a hypothetical one. Is this legislation necessary? As I examine my own inner feelings on this I have to conclude that the answer is yes. I do add though that if capital markets are to work properly they need clarity and certainty. 
We do risk stifling capital flows with the way this legislation is drafted. I am not sure we could do it any better having said that. What I do say to members though is that we need to be pragmatic enough big enough to come back to the House and make changes to tweak this legislation where and when appropriate as we discover through the course of examining legislation that is so large that we have made errors in drafting in intent or in application. Experience has taught me that that will be necessary. What investors in this country do need though is certainty and confidence in their markets and in the operators therein. I have no problem with supporting the legislation but I do offer that advice to the Minister and to subsequent Governments. I am sure that this is legislation that just by its sheer complexity and size we will come back to sooner rather than later and have to rework in some areas. 
I turn now to Part 2 and look at the powers that the courts have. There is no doubt that the powers inherent in this bill do enhance the powers of the courts to bring convictions; there is no doubt about that. But I say to colleagues let us not assume that because there are enhanced powers we will see a significant number of prosecutions as a consequence. What I think this part will do is send very clear signals to people who are operating in this market that they need to be very careful and they need to be beyond reproach otherwise the consequences will be severe. That is a warning also. It goes back to my concern about stifling capital flows because I think there is a tendency in the way the legislation was drafted to make operators risk-adverse. By that I simply mean that when they are uncertain they will take the no-risk approach and decline to get involved as opposed to shaking their shoulders and having a go just because the consequences are significant. 
I touched on management banning orders in a previous call but it is something that concerns me. I think on balance the Commerce Committee has worked well to come up with a sensible solution. I want to share with members just how significant some of these things are. In terms of management banning orders new section 44DB inserted by clause 51 states: “A management banning order may for a period stated in the order of 10 years or less prohibit or restrict the person (without the leave of the Court) from being a director or promoter of or in any way (whether directly or indirectly) being concerned or taking part in the management of an incorporated or unincorporated body …”. I say to the Committee that that is a hell of a power; it is a hell of a thing to do to ban someone from taking part in what was hitherto his or her livelihood. 
I do not want to be giving confused messages. If someone is engaged in inappropriate behaviour let us throw the book at that person. But let us be careful that we are not getting people caught up under banning orders because of a technical breach an unintended breach because the consequences are very very significant. A person who is banned and cannot pursue his or her livelihood as a manager or director of an organisation in one field will not be able to pursue his or her livelihood in another. 
Hon Lianne Dalziel 
: They have to be convicted of an offence. 
BRIAN CONNELL 
: I agree with that. I understand that point. I am just drawing attention to the fact that this is a very significant issue. 
CHRIS AUCHINVOLE (National) 
: 
 Business thrives on risk. That is how it measures progress—by taking risks and getting benefits from taking that risk. What stifles business is uncertainty. The question we have to ask—as well as the question asked by my colleague as to whether legislation is necessary—is whether this legislation the Securities Legislation Bill will provide certainty and remove uncertainty to those in the commercial field. In speaking to support the bill I join my National colleagues in considering that it will indeed remove uncertainty and therefore it merits support. It is worthy of support given the considerations and concerns that my colleagues who spoke earlier have mentioned thus far. 
I do have a question though. Even though we have moved on from Part 1 I do have a question for the Minister. Why has this bill taken so long to come back to the House? We are talking about certainty and uncertainty. I would suggest that this bill requires a certain amount of urgency. We have heard the comments of my colleagues—Mr Tim Groser not least—about where New Zealand sits on a world measurement basis. We need to have confidence in the level of integrity and we need to know why the bill has taken so long to come back from its introduction and consideration by the Commerce Committee. It has now come back at this late stage. Were there difficulties associated with its development? I think the Minister should take a call and help us with those responses. 
Hon Lianne Dalziel 
: I wasn’t the Minister when it was reported back. 
CHRIS AUCHINVOLE 
: Well that says it all I guess. I know there has been an array of Ministers who have handled this portfolio. Indeed of the last four Ministers I think the present Minister has held the position longer than most and that is to her credit. 
There are aspects of the bill that merit being looked at individually. One is the effect on the Takeovers Act 1993. The bill makes three main changes to that Act. It amends the application to the Takeovers Act and the Takeovers Code by removing the $20 million threshold requirement from the definition of a specified company. The Act and code will apply as long as a company has 50 or more members and shareholders regardless of whether it has $20 million of assets. 
Hon Lianne Dalziel 
: This is extraordinary—it’s exactly what my notes say. 
CHRIS AUCHINVOLE 
: It is. It is similar and I think it is important that those who are listening to the debate are party to some of the detail in the bill. It is not a matter of just talking in platitudes although the Minister might be more comfortable with that. I think it is important that we get into the nitty-gritty of it look at some of the hard stuff and ask questions in the hope that those questions will be answered. 
Again the overarching question I have is why this bill has taken quite so long in coming back. Is that an indication of the significance that the present Government attaches to this bill? Because National would attach rather more to the integrity and the confidence that people can have in our capital markets in New Zealand. I notice that aspects of this bill—I think someone has commented on it—are borrowed legislation. A lot of it comes from Australia. To me that is not entirely a bad thing because ever-increasingly we do need to have closer relationships and closer harmony in our legislation with our trans-Tasman cousins so that there can be a regular interchange of business relationships between the two countries. Thank you Madam Chairperson. 
The question was put that the following amendment in the name of Pansy Wong be agreed to: 
to insert the following new clause: 
52ANew section 45A inserted 
The principal Act is amended by inserting after section 45 the following section: 
45APanel to decide on use of code 
The panel may decide whether a merger is structured solely for the purposes of avoiding the code and therefore must proceed as a takeover in doing so the panel must consider— 
(a)whether the same result can be achieved via a takeover; and 
(b)whether there was a legitimate commercial purpose in preferring the merger; and 
(c)whether there is a key feature of the merger that could not have been achieved through the use of a takeover mechanism a key feature could include: 
(i)a reduction of capital; or 
(ii)an amendment of the target’s constitution; or 
(iii)a variation of the terms of options or convertible securities; or 
(iv)acquisition of more than one class of share by a single procedure. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 48 
New Zealand National 48. 
Noes 71 
New Zealand Labour 50; New Zealand First 7; Green Party 6; Maori Party 4; United Future 3; Progressive 1. 
Amendment not agreed to. 
The question was put that the amendments set out on Supplementary Order Paper 59 in the name of the Hon Lianne Dalziel to Part 2 be agreed to. 
Amendments agreed to. 
Part 2 as amended agreed to. 
BRIAN CONNELL (National—Rakaia) 
: 
 I appreciate the confidence my colleagues are showing in me in taking this call! I start by thanking the officials for the advice they offered to the Commerce Committee. I was negligent in not having raised this issue earlier when I took some calls because the officials did help the select committee work its way through some very complex issues. I know there were lots of questions and comprehension at times was lacking. The officials were very patient and we appreciate their indulgence. I also thank my select committee colleagues for the way they worked in drafting this Securities Legislation Bill as well. The same argument applies. It is complex legislation and we worked collectively in a collegial way in order to come up with the best legislation that we possibly could—albeit I have expressed some reservations about compliance costs and some of the complexities and have raised the spectre of revisiting this legislation in future years if the need arises. 
Importantly Part 3 deals with the sharing of information and I will talk about that in a little detail. The information-sharing power inherent in this bill recognises the public interest in ensuring that regulators working in similar areas cooperate in the performance of their duties and thus enhance the efficiency of their investigation and enforcement functions. It might surprise members of the Committee that that has not been the way we have done things as a matter of course in the past so I think that this is a very sensible initiative. Again I thank the select committee members for working to make this possible. 
Prohibitions against misleading and deceptive conduct have been introduced into this securities and takeovers law and the same considerations suggest that the information-sharing power should be extended to encompass the Commerce Commission’s role under the Fair Trading Act. Again I agree with that measure. It is a very significant and good initiative. My colleagues have touched on the significance of this legislation in the course of the debate and on how important this legislation will be in enhancing confidence in our capital markets. I think information sharing like this is absolutely critical to the success of this legislation so I commend this component particularly to members of the Committee as a cornerstone of the legislation and as something that is extremely important if successful prosecutions are to be brought. 
I have laboured the point in the past and I do not want to bore members with it again but bringing successful prosecutions for insider trading is notoriously hard to do. Without the ability to share information across Government departments and authorities we will continue to have a poor success rate. So this is a very important component of enhancing our intention to capture those who would engage in misleading deceptive or insider-trading activities in this country. 
We should have no sympathy for people who are prepared to engage in those activities. In the past I think there has been the view that white-collar crime like this is something we should not be overly concerned with. Well it is mum and dad investors who are often the target of some pretty unscrupulous people who engage in activity for personal gain which is why I feel so strongly about supporting this legislation and why again without labouring the point I think the information sharing inherent in this bill is a very significant step in the right direction. 
 I conclude by again thanking the members of the Commerce Committee for working through this bill. I know there is one more debate to be had on the title but I was remiss in not raising the point earlier. I know that some of the officials are here tonight. There are questions still unresolved in my mind that I am sure if I had access to the officials they would be able to answer. The Minister in the chair the Hon Lianne Dalziel has done a pretty good job in taking responsibility for answering tonight some of the legitimate concerns and questions and I thank her once again for answering those. With those few words I will conclude. 
PANSY WONG (National) 
: 
 National is supporting this bill because we certainly believe in the objective of passing legislation to increase the confidence of investors. But I do have a concern. In the last 2 weeks in this Chamber we have been constantly told by the Hon Pete Hodgson that if the rules are correct and the interpretation is wrong then Ministers will still pass the blame and say that the rules are not correct. So to me passing this legislation is fine—we are supportive of it—but what sort of assurance do we have in relation to agencies such as the Securities Commission which is a statutory body the Takeovers Panel and the Commerce Commission all affected by this legislation? If they operate following the intent of this legislation will they be left alone to implement its spirit? 
We have learnt this afternoon that the chairman of the Electricity Commission has been sacked because he would not give in to political pressure. He wanted to carry out his duty according to legislative provision but what happened? He was sacked. I want an assurance from the Minister that if we assist the Government to pass this legislation—in the spirit of improving and enhancing the confidence of investors in our capital and securities markets—the people who are in charge of the Securities Commission and the Takeovers Panel if they adhere to this legislation will be left alone to carry out their tasks objectively. I think that internally this legislation will assist them because it will give them the flexibility to cooperate with each other. As my colleague Brian Connell said they can share information in relation to commercial crime such as insider trading which is incredibly difficult to detect. So I think it is a good thing they are allowed to share information. 
But to me the biggest challenge facing those agencies is not so much having legislative backing; it is when how and where political interference comes. I have stated time and time again that if the Government is clear in its vision and in what it wants to achieve only then is legislation the tool to point out the direction to get to that destination. But if the Government has no idea where it wants to go then those agencies will be left carrying the can. For example if the capital market continues to flounder or if we find there are not enough investors interested the Government will continue to say that it is because we do not have enough protection to tackle insider-trading practices etc. 
We are not trying to underrate the existence of the problem and just now I have demonstrated that we have one case that was able to be prosecuted. Provenco was able to be prosecuted by the Securities Commission under the existing legislation. That company and the Securities Commission eventually came to an agreement and agreed on a $600000 settlement. So it seems to me that existing legislation had already provided the Securities Commission with the tool to do the job. The language and intent of this legislation are quite harsh and one wonders whether they will strike the balance but the concern we really have is whether the Labour Government will leave those statutory bodies to carry out their tasks according to the latter of the legislation we are debating tonight. 
CHRIS AUCHINVOLE (National) 
: 
 We have heard quite a lot lately about the seeming inability on the part of the Government to encourage New Zealanders to invest in stock shares bonds securities and other financial instruments instead of domestic property. I have no wish to be seen to be critical of Minister Dalziel—nothing would be further from my mind—but surely the Minister in charge of this bill will take a measure of responsibility for the seeming lack of confidence on the part of punters to invest their money beyond domestic property. 
Perhaps the Minister in the chair the Hon Lianne Dalziel will take a call and explain why this bill is so late in coming forward. 
The CHAIRPERSON (Ann Hartley) 
: We are on three clauses—clauses 60 to 62—and they are quite narrow. 
Hon Lianne Dalziel 
: Part 3. 
The CHAIRPERSON (Ann Hartley) 
: Part 3 clauses 60 to 62. 
CHRIS AUCHINVOLE 
: We are sharing information on this aspect and I am sure the Minister will be interested in it. She is looking particularly interested as I speak. The Minister has surely accepted the fact of the matter that people are not sufficiently assured over the security of putting their money into the financial markets. 
 So we look at the specific parts we are presently discussing clauses 60 to 62 as the Chair pointed out to me. Clause 62 amends the principal Act by inserting after section 48 new section 48A “Sharing of information with Securities Commission or Takeovers Panel” which states: “(1) The Commission may communicate to the Securities Commission or the Takeovers Panel any information that the Commission (a) holds in relation to the exercise of the Commission’s powers or the performance of its functions and duties in respect of this Act; and (b) considers may assist the Securities Commission or the Takeovers Panel in the exercise of their powers or the performance of their functions and duties in respect of false misleading or deceptive conduct under the Securities Act 1978 or the Securities Markets Act 1988 or the Takeovers Act 1983 or the takeovers code in force under that Act.” 
Finally for the sake of the listeners I will read out subsection (2): “The Commission may use any information communicated to it by the Securities Commission under section 17B of the Securities Act 1978 or under section 15B of the Takeovers Act 1983 in the Commission’s exercise of its powers or the performance of its functions and duties in respect of this Act. (3) This section applies despite anything to the contrary in any enactment contract deed or document.” 
A central feature of the bill is the relationship between the Securities Commission and the Takeovers Panel which is laudable. The question though that the Minister in the chair the Hon Lianne Dalziel should take a call on and answer is what will this do to improve the confidence of investors in this country in the financial markets? Where will they draw from—the purpose of the bill—to increase the confidence of securities? How will this happen? How will it help? That is the challenge for the Minister. Will they stop investing in property? Will we see with the passing of this bill the intended target of the present Government which is to see a wider-based level of investment on the part of New Zealanders other than into property? That is the question. 
The question was put that the amendments set out on Supplementary Order Paper 59 in the name of the Hon Lianne Dalziel to Part 3 be agreed to. 
Amendments agreed to. 
Part 3 as amended agreed to. 
Schedule 1 
The question was put that the amendments set out on Supplementary Order Paper 59 in the name of the Hon Lianne Dalziel to schedule 1 be agreed to. 
Amendments agreed to. 
Schedule 1 as amended agreed to. 
Schedule 2 
The question was put that the amendments set out on Supplementary Order Paper 59 in the name of the Hon Lianne Dalziel to schedule 2 be agreed to. 
Amendments agreed to. 
Schedule 2 as amended agreed to. 
Clauses 1 and 2 
BRIAN CONNELL (National—Rakaia) 
: 
 Thank you for the call again on the Securities Legislation Bill. We have had a fairly broad and far-reaching debate this evening. We have touched on the issue of sharing information with the Commerce Commission which I think is something that is a good move and I have already spoken to that. We have touched on management banning orders which is an issue that has my support also subject to the concerns I raised around the severity of some of those orders. Another issue was declaration of contravention and declaration of civil liability procedure. We touched on liability under the Fair Trading Act. We did not touch on the issue of bank term deposits being excluded from the definition of security and I want to touch on that very briefly. We did talk about information generally available to the market. So it has been a good debate that has canvassed the significant issues. 
One area I want to touch on is that in drafting legislation we need to be very careful that we are not creating an impression that we are providing certainty about the market. What we are doing is enhancing confidence in the market but to say that we can now say to punters there is absolute certainty and confidence in the market would be a mistake. I am sure the Minister does not intend that but I sound that as a general warning to members and those listening because it is a very important issue. The investing public must still take responsibility for its actions. Governments and members of Parliament in framing legislation can go only so far to give people an even playing field. Their own decision-making ability and the advice that they seek or rely on should be something that they are satisfied with themselves because there is no such thing as a perfect market. 
The issue of bank term deposits was raised at the Commerce Committee by a number of submitters as something that would be too difficult to enforce. Collectively the select committee agreed that the inclusion of bank term deposits was not particularly sensible. I think it would have been an impossible issue to police. Sanity has prevailed but what was initially suggested was that those who ring up to put money on deposit would have to go through a paper transaction and declaration that would take a huge amount of time. It would have been an unreasonable impost to put on to people—the banking institutions in particular. So that provision was removed which was a step in the right direction and helped the National Party come to the conclusion that this was pretty reasonable legislation that we could support with good conscience. 
The issue around a research and analysis defence to insider trading is something I have raised in the course of the debate. It is an issue that still concerns me. From going back and looking at the commentary on the bill I see that it is an issue that has been addressed albeit that the scope of that defence is very narrow. I reiterate my warning that we do not want the medicine to be worse than the disease because on balance I think New Zealand’s capital markets operate very efficiently. Is there room for improvement? Yes that is why we are trying to draft sensible legislation. But we do not want to get to a point where we restrict capital flows. We must not do anything to undermine the confidence the ability or the willingness to participate in the market place of the bright young things who underpin our capital markets for fear that they might get something wrong. I accept the Minister’s assurances and from re-reading the commentary I think that issue has been reasonably addressed. Again it is something that we might need to be big enough to come back to as a House if it causes concern or starts to stifle those capital flows. 
With those remarks I conclude by saying it has been a good debate. Those who have participated in the debate have done so in a constructive way and I have to say it has been a very satisfying evening’s work. 
PANSY WONG (National) 
: 
 The National Party supports the passage of the Securities Legislation Bill but I take the opportunity in the 25 seconds left to alert people to tune in to the radio tomorrow afternoon when I will continue to dissect some of the major issues. I am sure that everybody will be waiting with interest. With that I say that a very cooperative style has been taken in the passage of this legislation. 
Progress to be reported presently. 
House resumed. 
The Chairperson reported the Standards and Conformance Bill without amendment and that the Committee had divided it into two bills and progress on the Securities Legislation Bill. 
Report adopted.