Connell Brian: Securities Legislation Bill — In Committee 
Connell Brian: Securities Legislation Bill — In Committee 
[Volume:634;Page:5467] 
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.