Securities Legislation Bill — First Reading 
Securities Legislation Bill — First Reading 
[Volume:622;Page:18041] 
Securities Legislation Bill 
First Reading 
Debate resumed. 
BRIAN CONNELL (National—Rakaia) 
: 
 National intends to support this bill through to the next stage and we will reserve our position thereafter. This bill addresses second-tier application issues such as defining the territorial scope of investment adviser law received or given in New Zealand. In what I consider to be a good move it removes the $20 million threshold requirement from the definition of “specified company” in the Takeovers Act in order to give greater certainty about whether a takeover is governed by the Takeovers Code. The Institute of Chartered Accountants raised a series of questions on that issue in a submission to the Ministry of Economic Development in September 2002 which somewhat persuaded me to come to the conclusion that the threshold should be removed. It argued that due to the shortcomings of the code there is little guidance as to how the $20 million asset threshold is to be measured—is it gross value of assets or market value that triggers the threshold? 
The bill deals with three other major issues that I want to address: insider trading market manipulation and substantial security holders’ disclosure. The bill sets out to strengthen the law relating to insider trading. Conceptually I think most of us would agree with that. I do not want players in the market to get richer on the basis that they have access to information that other players or investors do not have. Most of my business experience was gained in Australia and over the last 10 years or so there have been some high-profile prosecutions of senior executives who engaged in insider trading in Australia. That those prosecutions were successful speaks volumes about Australia’s determination to deal with those who would engage in some type of corporate fraud or deception. Australia’s insider-trading legislation has been framed to give teeth to that determination. I spoke about successful prosecutions in Australia yet in the corresponding time in New Zealand to my knowledge no successful prosecutions have been made. That cannot and should not continue. In that regard New Zealand is looked upon as something of a soft touch. 
The bill sets out quite unashamedly to adapt and introduce a regime similar to Australia’s. It will apply to any person who has material information that is not generally available to the public. I do have a caution that I would like the select committee to be cognisant of. Before extending the scope of our insider-trading regime the select committee must ensure that any benefits to be derived from that will outweigh the costs involved. A broad-reach system will invariably increase compliance costs for business. When members of the select committee are grappling with that issue I will be looking for them to determine the application of the law—that is whether it will apply to on-market transactions only to all transactions in quoted securities only or to all transactions in securities? Those are difficult decisions and they are quite complex in nature so the select committee will need to take expert advice in coming to a decision. 
Market manipulation is quite a different matter from insider trading. Market manipulation through the distorting of prices clearly impacts negatively on the efficient functioning of capital markets. The resulting uncertainty discourages trading reduces liquidity increases the cost of capital and compromises the ability of the markets to allocate capital to those firms that are best able to use it. Clearly market manipulation is a problem but again I caution the select committee to make a judgment call on whether the medicine will be worse than the illness. The unwanted costs of regulation need to be weighed up against the benefits of a well-designed regulatory regime. Essentially the challenge is to catch abusive practices without catching harmless practices to boot. The next decision the select committee will have to grapple with is this: should market manipulation be viewed as a private wrong or as a wrong against the market? The answer to that question will be critical to the framing of the law. Even in Australia very little action has been brought against those engaged in market manipulation simply because it is hard to determine where the responsibility lies. So while the theory is good the select committee may find that issue is a particularly hard nut to crack. 
Finally I want to address the issue of substantial security holders’ disclosure. The bill aims to simplify the current regime by requiring the disclosure of relevant interests by class and in respect of listed voting securities only. The updated regime ensures that investors and public issuers can identify substantial security holders and therefore make informed investment decisions. Of course the National Party supports that because the ability of investors to make informed decisions goes to the heart of credibility and of investor confidence. As we heard in a previous debate investor confidence in our markets is absolutely critical if New Zealand is to grow as a nation. 
Again though I have to issue a caution to the select committee. Costs to the investing community—to the firms involved in the capital markets—will increase. The select committee must ensure that a mechanism is in place to ensure that a spike in costs does not become institutionalised. That is one of my major concerns about the legislation that this House has passed during my time in Parliament. What is not often understood is that organisations maintain their profitability by being able to manipulate their margins. In times when there is revenue aplenty that does not represent such an obstacle. But if we institutionalise costs into the cost line of businesses when things turn bad—when the revenue line turns down—the ability of organisations to maintain their margins and therefore their profitability is impinged upon because they have no control over the costs that have been built into their businesses through what I roughly call the institutionalisation of costs. So when I sit on the select committee that I understand will be dealing with this legislation I will caution my colleagues that we need to be very cognisant of that concern. In the case of this issue it will not be easy to find solutions. 
This is very complex legislation and we are grappling with very complex issues. I will repeat my cautions. We must not create medicine that is actually worse than the illness. We need to make sure we have a solution that gives the business community and the investor community which we seek to support confidence in the legislation we are framing. With those cautions I conclude. 
DAVID PARKER (Labour—Otago) 
: 
 I am pleased to rise in support of the Securities Legislation Bill which makes amendments to the Securities Act the Securities Markets Act the Takeovers Act and the Takeovers Code which is enforced under the Takeovers Act. It does so with the intention of improving the regulation of the financial markets and the intention behind that is to give people confidence in investing in New Zealand’s markets and so to improve our economy. Amongst other things the bill aligns our insider-trading laws more closely with those of Australia and it makes some simplifying changes with regard to substantial security holders’ disclosures. I commend the bill to the House. 
BRENT CATCHPOLE (NZ First) 
: 
 New Zealand First supports the progress of this legislation to the select committee. It is clear that the current laws surrounding insider trading are inadequate. To date there has been not one prosecution in New Zealand for insider trading. This legislation will amend the Securities Act the Securities Markets Act the Takeovers Act and the Takeovers Code. This legislation is desperately needed in the marketplace. The stock exchange operates a market within a regulatory framework designed to maximise transparency fairness effectiveness and competitiveness and to promote confidence among all market participants. It is also there for shareholders. All shareholders should be treated fairly and equitably. Any unfair share-trading practices should be detected and met with effective remedies. It is these remedies that have failed in the past. The market rules should be backed by effective mechanisms for investigation surveillance and enforcement with strong sanctions against deliberate breaches of the rules. 
We have seen huge corporate frauds and means of swapping moneys from one company or one corporation to another and methods of changing the marketplace by insider trading. New Zealand First as most members will know has always stood strongly against corporate crime of any description. We support any moves to clean up our securities market improve people’s confidence in the market and bring to justice those who have not been playing by the rules. 
The Rt Hon Winston Peters refused to quit in his pursuit of the wine-box matter. That clear example shows that New Zealand First is not prepared to allow the kind of corporate fraud that has gone on in the past. 
Pita Paraone 
: What support did this House give him? 
BRENT CATCHPOLE 
: Absolute zero! Members fought long and hard to block every move by which he tried to bring that fraud to the House. It was only on a slip that he was able to table the wine box and expose the fraud that had gone on. 
New Zealand First stands firm on its commitment to fight corporate crime. I would like to quote the Rt Hon Winston Peters who said: “New Zealanders are simply not interested in returning to the failed far-right policies that Don Brash proposes. They know that National has no concern for ordinary New Zealanders but is in the pocket of big business. What has National said about the insider-trading case involving New Zealand Rail?”. 
Simon Power 
: I raise a point of order Mr Speaker. The member knows that it is unacceptable to accuse any member of Parliament or any political party of being under the influence of any party or organisation outside the Chamber. 
The ASSISTANT SPEAKER (Hon Clem Simich) 
: Quite right. Mr Catchpole could you withdraw and apologise. 
BRENT CATCHPOLE 
: I withdraw and apologise. Without sound insider-trading laws and antitrust laws New Zealand is completely out of step with international markets. That is not moot and we have a situation where certain parties in this House have not supported addressing such issues. I dare not say any more on that issue because I will be pulled up again by the member. 
Dail Jones 
: They are very sensitive. 
BRENT CATCHPOLE 
: They are obviously very sensitive about this and with good reason. Aspects of this bill require fine-tuning but it is a step in the right direction. It aims to bring New Zealand’s securities laws into line with those of the rest of the world. We expect many of the flaws in this legislation to be ironed out by the select committee process with the help of submissions from the public and from other parties of interest. But our main issue with this legislation is that New Zealand First wants to see the marketplace cleaned up to provide security and put confidence back in the market. 
A more transparent market is a more attractive market to New Zealand investors and to investors from overseas. The provision in the legislation to prohibit people from creating false trading activities such as buying and selling stock to themselves is to be applauded. Any efforts to stop this are greatly appreciated and welcomed by New Zealand First. Some critics say that the regulations will be expensive to uphold. We are not entirely convinced that the extra $1 million that the Government is prepared to put into this legislation is enough. Let us face it Australia has a budget in excess of $200 million for the Australian Securities and Investments Commission. That is a lot more than New Zealand is prepared to put in. That extra $1 million will bring the total up to only $7 million. So New Zealand First is concerned by the fact that this will not really be sufficient. 
Enforcing insider-trading rules is very difficult and will remain difficult even with this legislation but at least we are getting some mechanisms in place that will make it far more difficult for insider traders and make it easier for them to be caught and exposed. Some in the industry have also said that the legislation amounts to smoke and mirrors and they would prefer that the Government had adopted laws that are better suited to New Zealand rather than mimicking the Australian laws. Unfortunately in Australia as Brian Connell pointed out there have been six prosecutions over the last 10 years. But Brian Connell did not point out that only one person has been convicted and gone to jail. So even with all that extra money it is very difficult and obviously the Australian example is not necessarily the best for New Zealand. We want to see some changes made to this bill and we will be working in the select committee to make sure those changes are brought about. 
The select committee process is likely to iron out these issues and we will certainly be working with the committee to make sure that those problems within the bill are ironed out. We will make sure at all stages that the bill will be what the marketplace requires. Certainly the stock exchange with its high standards would expect the support from the legislation to ensure that people do not take advantage of situations and do not rack up share and securities prices by insider trading by using insider funds to swap from one company to another or by buying their own shares to ensure that their share prices increase. 
New Zealand First wants to make sure that the rest of the community and certainly the business community understands that we will be fighting hard to ensure that there is fair play for everybody that everybody has fair access to all the information and that others do not take advantage of that situation. We have seen that in the past and have fought against it. New Zealand First wants to ensure that this bill makes the marketplace a safer and better place to trade and that trading is on an even playing field so that it is fair for everybody. New Zealand First supports this legislation to the select committee and we look forward to working through it. 
STEPHEN FRANKS (ACT) 
: 
 It is quite sad for me to be looking at this legislation which covers areas that I have spent so much of my working life working in. I think I was probably the most determined as a practising commercial lawyer to uphold and improve enforcement of securities law in this country. I spent 9 years putting hundreds of unpaid hours into the surveillance functions of the market surveillance panel and I spent many many hours making submissions and encouraging people to bring proceedings against insider traders. I spent a long time on policy issues to understand the securities laws of Australia the United States and the United Kingdom. 
When I look at this bill and see the primitive aping of Australian law I am really sorry for New Zealand. One of the advantages that this country should be exploiting is the ability to avoid some of the stupid political solutions that the Australians inflict on themselves as a result of having too many layers of politicians with too much influence after the occasional moral panic and the political hysteria that follows from their crashes and panics. 
I look at what we have done with for example insider-trading law and I see it going wrong in two ways. Firstly it is not very complex. Insider trading needs a clear conceptual foundation. We deliberately did not adopt one in 1988 and we deliberately are now moving even further away from a clear principle. Insider trading has resulted in a number of proceedings. I know of proceedings that have resulted in the payment of millions of dollars by the offenders. I know of the proceeding that I prosecuted in the name of my wife Roger Kerr’s wife and Roger Kerr against Kerry Hoggard. Hoggard paid many times the value of what he made. The only reason that it did not proceed to a conclusion was because of a law that meant that if we had gone further and taken the case right through the court would have held that his offer precluded us from recovering our costs. I believe that that is probably the case with a number of these proceedings. If we had refused his offer to settle the court would have said not unfairly when it reached an eventual outcome that because he had offered to settle for an amount that was in the order of the penalty that the court might order it would not award costs. The costs were so big that we settled. What I can say is that we were not alone. There are cases still trundling through the courts where insider traders will pay very heavy penalties. 
I then look at the dishonesty in this law—and it is dishonest. It refers to civil pecuniary penalties as if there is some magic in those words. I think what it really means is penalties that can be levied on the balance of probabilities. The standards that are set out are standards that no politician would tolerate such as absolute liability or liability for being inadvertently misleading. The legislation includes liability of up to a $5 million fine for something that is not even defined. There is liability for breaches of regulations that have not been written. I think it is very sad to see this House adopting the sanctimonious hysteria mode of saying that there must be badness out there because we have not seen prosecutions and we should therefore throw away longstanding principles. The State must not use its coercive powers to punish people until there is proof beyond reasonable doubt. 
I think it is sad also because we will inevitably achieve the Australian culture. I have worked on both sides of the Tasman on fundraisings takeovers and securities and I believe that the New Zealand market was far more intrinsically honest than the Australian market. I believe that this is partly a result of this kind of law. The Australians have an insider-trading law that everyone knows cannot be used because honest people will be put behind bars. So they have a set of understandings that mean people know the law is never actually applied the way it reads and now we are adopting it. 
We are saying that if someone has information that the market would like to have even if that person acquired it perfectly honestly had spent a lifetime in that business and understood the significance of a Government announcement of a change of policy before anyone else did and was making sure that the business trades on the investment subsequently made—and he or she knows that—and the information has not been derived from anywhere except by a public announcement that person is still an insider trader. That is absolutely what happens. 
New section 8A(1) which is proposed to be inserted into the Securities Markets Act by clause 21 states that a person is an insider trader 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; and (c) knows or ought reasonably to know that the information is not generally available to the market.” That person is an insider trader and cannot trade. 
What is “material information”? The information that is material will be a person’s knowledge of the significance. That is that person’s own proprietary information. For example a person may have spent a lifetime as a scientist understanding the next cure for  
Dothistroma pini 
 for trees and will know the moment it becomes evident that there is a genetic test for that disease. He or she will have the ability to increase the value of the entire forest estate of New Zealand. But this bill would say that until that person has explained it so that everyone in our market understands it that person cannot use his or her own knowledge—even though that person did not get it from anyone within the company. It was not obtained illegally—the information was drawn from the person’s own research. 
We know that that will happen. This market is given a feeble exception whereby the bill provides that it is not inside information if it is obtained by independent research and analysis. Well what is “independent research and analysis”? It means “planned investigation to gain new knowledge and understanding”. I would think that would be a phone call. Clearly someone has to plan to make a phone call which seems to me to be a planned investigation undertaken to gain new knowledge. In other words there is a set of slogans as the standard for an insider and then because that is completely unrealistic there is a set of exemptions that mean the law is actually mocked. Anyone faced with a potential $5 million fine in any court will lean over backwards to find that a person can fall within a planned investigation undertaken to gain new knowledge and understanding. In other words this law is simply a charade. 
We had a rational—or semi-rational—test before which said that if someone had information that is not that person’s property and that person has misused it that person would be liable. That was rational because it was upholding the ethical standards of those who acquire information in circumstances where they should not use it. 
That is only a part of this law. I have looked through it and I know that people will not invest the time in protesting because they know that the market in Australia gets around it and works. I am not surprised by the statistic of one secure prosecution given by Mr Jones from New Zealand First. It is really hard because often markets can work only when informed traders participate. As an uninformed trader I want the market price to be set by a whole lot of people who know more than me. I want the market price to be set by those who know that the new disease can be cured. I do not want a market that will adjust its price only when everyone understands it. That ruins markets. 
It has been known for years that the Australian test is illogical and is a joke but the Australians have enough clout to be able to persuade a weak Government and feeble Ministers. They are like kids sitting on a bulldozer. They do not know how to drive it but they can do damage and make it make a good noise. So every other kid on the block is admiring them. Others who would love to have the controls of the bulldozer are saying: “Yes we’ll pretend that you can drive if you pretend that we can.” That is what this Government is in a securities market. 
JEANETTE FITZSIMONS (Co-Leader—Green) 
: 
 The Green Party supports this bill going to the select committee. We look forward to the debate that will occur there and the submissions it will receive. 
Members spend a lot of time in this House working ourselves into a lather to see who can be toughest on the sorts of crimes that are committed by the marginalised and deprived in this society but I think it is just as important that we have equally stringent rules for those who have every advantage but who nevertheless take advantage of other people and commit crimes involving very large amounts of money. No doubt there will be a lot of debate at the select committee as to what is the best way to do it. I found the points that Stephen Franks made very interesting and we look forward to further debate. 
GORDON COPELAND (United Future) 
: 
 I find it quite interesting and perhaps quite fortuitous that the Securities Legislation Bill follows hard on the heels of the Overseas Investment Bill because there are quite significant interrelationships between the two things. 
If we look at the big picture—and many of us made this point when talking about the Overseas Investment Bill—we see that New Zealand is dependent on overseas people investing in this country. If the market is to work properly one of the things that overseas people investing in this country need to know and have assurance about is that the local guys and girls do not have information about what is happening on the ground here that is not available to them. Basically I think that is what we are trying to describe however roughly when we talk about insider information. 
I have always thought of it as information gained by a person who has an association with a company—for example as a member of the management or the board—that is then used for personal gain. Using that information personally even under our rather loose arrangements here would probably get that person into trouble but he or she can dodge that by telling someone else the information and having that person undertake the transactions in his or her name on the basis that when a tidy profit is made both share the proceeds. That is all part and parcel of the kind of mischief this bill sets out to overcome. 
Stephen Franks 
: That’s illegal now. 
GORDON COPELAND 
: I appreciate that it is illegal at the moment. I think the case being taken at the moment against David Richwhite and the former chief executive of New Zealand Rail and some other former board members is about the sort of behaviour that everybody says is conceptually quite unacceptable. When people see individuals who quite clearly are on the inside of a company and who have information that the rest of the market does not have using that information to make unconscionably large sums of money in short periods of time to line their own pockets and when people look at the other side of the ledger and realise that others who put their money into the same company at the same time are now significantly disadvantaged sometimes to the point of having very significant losses they can plainly see that that is quite wrong and needs to be stopped. I hope that prosecution will go ahead and deliver some messages to others who might be tempted to go down that route. 
I want to agree though with what Stephen Franks said which was that generally the level of honesty and ethics in New Zealand markets is very good. However there have been a number of rogue people. Some of them have gone right over the boundary into fraud and have ended up in prison. But in some ways it is just as bad to defraud people of funds in other ways simply through using information that one has gained as an insider. 
I think that is the big picture. What we are trying to do with this bill is put together a regime that basically gives people living in New York and investing in a New Zealand company on the New Zealand stock exchange reasonable assurance that they are playing on a level playing field. We have Internet access these days which means that people in New York are able to have as much information about a New Zealand company as the locals do and that is fine. We simply need to give that kind of assurance so that we can encourage free and open markets. 
The other thing this bill does is change the conceptual framework around insider trading from the former understanding that it was a breach of duty to the company to say now that it is actually a breach of duty to the market itself. I think that is a step in the right direction. When I did my commerce degree and studied commercial law—a long time ago now—companies in New Zealand were not able to buy their own shares. Therefore if one was using insider information gained as an insider of the company one was also breaching a duty to that company. That has all changed; companies can now buy their own shares so it is now possible for a company itself to breach insider-trading concepts by utilising information that disadvantages the other participants in the market. The proposed change I think needs to happen. 
I am not quite as negative I think as the member Stephen Franks—and I certainly bow to his expertise in this area. I do not interpret the exceptions quite as he understands them. My understanding is that there will be exceptions for legitimate market-efficient activity such as research and analysis. By that my understanding is that people are still free to use their wits and their brains to figure out information about trends in a company market research and all those kinds of things in order to make an informed decision about whether an investment is a good investment or a lousy one. They have no obligation to tell anybody else about that and I do not think that flows from this bill at all. What the bill is trying to say is that that kind of activity is fine and clearly is not in any sense insider trading or insider information because it is information obtained by if one likes outsiders. 
So I think the exceptions are right and proper but they are imperfect. We have this curious thing which everybody talks about called Chinese walls. I know that Stephen Franks will be very familiar with that concept. Somehow we kid ourselves that people working in the research division of a stockbroking firm for example who find out information will not tell it to another member of the firm who might have an interest in that information. I know that some of the big professional firms do try to maintain these Chinese walls and they have quite strict rules about them but I think it is sometimes a bit of a stretch of the imagination to think they work quite as well as that. Stephen Franks is probably right that what actually happens is that the market sorts these things out itself and adopts some standard practice. I think that as long as that is fair and reasonable there is no problem but there is a point beyond which it should not go. When it goes over that point—and here I very much agree with Stephen Franks—it is important to prosecute and make examples of those people. That in itself basically sends a message to others that it could happen to them and that in itself restrains people and encourages them to act honestly sensibly and ethically which is what we are trying to do here. 
It is therefore very important that a new range of penalties is brought in and new powers are given to the Securities Commission and the Takeovers Panel so that they are armed with a comprehensive and flexible range of penalties and remedies which they can apply on a case by case basis. That seems to me to be a very sensible approach. The other things in the bill that I also think are good include the tightening-up of the investment adviser and investment broker law. It is important that people holding themselves out as experts are actually experts and that they make appropriate disclosures to people before they induce them to part with what might sometimes be almost their lifetime’s savings into the hands of a stranger who claims to have great knowledge and expertise in investing. I think that is a welcome step in the right direction too. 
Overall and as others have said I hope the Commerce Committee will go into the nitty-gritty detail of this bill and ensure that it remains on track in terms of common sense that it does not stray into overkill but that we get it right. With that trust in the select committee that will be looking at the bill I signal United Future’s support for it. 
MOANA MACKEY (Labour) 
: 
 I am happy to rise to support the first reading of the Securities Legislation Bill. It is important that we do all we can to build confidence in New Zealand financial markets in order to ensure that we are encouraging investment. Looking through this Securities Legislation Bill I think that strengthening our regulatory framework as is proposed in this bill is an important step towards achieving that confidence because the current laws are complex and difficult to enforce as we have heard from the Minister in charge of the bill. Although not a reason in itself the lack of prosecutions in New Zealand to date under the current law should be taken into consideration as an indication that maybe the current law in this area is inadequate. I look forward to seeing the work that the Commerce Committee does on this bill. It is good to see that it has wide-ranging support. It is important legislation and I commend it to the House. 
Hon TONY RYALL (National—Bay Of Plenty) 
: 
 I was pleased to receive a call this evening to come down and participate in the debate on the Securities Legislation Bill. I would like to talk about the import of securities legislation to the performance of Ministers in the House. We have seen the performance of Ministers in the country today. The Prime Minister gives huff and puff about what she will do to the directors of Television New Zealand in terms of the impact they have had on various securities associated with Television New Zealand—in particular the payment of those securities to one Mrs Judy Bailey. We have all the huff and puff and what happens? We have Steve Maharey on television parroting exactly what the chairman said to him. 
It is important that Ministers in this Government are particularly aware of what is being proposed in the securities legislation because on numerous occasions Ministers in this Government have broken the basic rules of securities legislation. I will give a couple of examples. 
Darren Hughes 
: Always ready to give a cheap shot. 
Hon TONY RYALL 
: Well actually it is not a cheap shot; they were both very expensive shots that resulted from breaches of the Securities Act. 
Let me just go through the first example. Jim Anderton the then Deputy Prime Minister of New Zealand appeared on the  
Holmes  
show to talk about the fact that he could fund Kiwibank through a redeemable preference share issue. A redeemable preference share issue was a proposal that had been floated by New Zealand Post and a considerable amount of work was being done on it by Treasury under both Governments. Mr Anderton was quite convinced that he could fund the growth of Kiwibank through the issue of some redeemable preference shares which would be a security that would be listed on the New Zealand Stock Exchange. What he was not told was that it would have provided market disciplines that would have affected the operation of the whole company. But Mr Anderton was convinced about its worth and because he likes to pretend to be informed he said on television that there could be redeemable preference shares and that they would be a really good deal. He scuttled the whole thing over night. Those few words on the  
Holmes  
show stopped the deal with New Zealand Post to issue redeemable preference shares because Mr Anderton broke a basic premise of the securities legislation. 
When National was last in Government and was working with Mr Peters as Treasurer to privatise Auckland International Airport—and he as Treasurer signed the prospectus for privatising Auckland International Airport—we were under very clear legal advice that we could say nothing about that security. Mr Peters who as Treasurer was privatising Auckland International Airport could say nothing about the sale of Auckland International Airport shares in terms of what benefit there might be to shareholders. Similar restrictions applied to the other wildly successful privatisations of Contact Energy and Capital Properties. 
Here is the second breach of the Securities Act. It involves the Prime Minister and Air New Zealand. She gave a television interview and made a statement about the likely future of Air New Zealand and the value of its shares. She said that people should hang on to them. That had an immediate impact on the share price. If that was not a breach of the securities legislation then nothing is. So if Labour members want to bemoan the fact that there have been no prosecutions as a result of breaches of the Securities Act they should wonder why the Prime Minister was not prosecuted. Mind you we have seen “paintergate” and now “motorcade” and in both cases the Prime Minister has not faced any prosecution whatsoever. My point is this. It is vital that Ministers know what is in this securities legislation because they have a history of breaching those regulations. They need to be aware of the legislation so that they do not do that again. 
Quite a lot of good information was given by Brian Connell earlier in the debate about the importance of making sure that the remedy is not worse than the illness. The criticism I made of the last piece of securities legislation that came into the House which I see the Government has tried to remedy was about the quite superficial analysis of the regulatory impact statement. It is quite superficial. There are very few numbers. There is a sort of calculation about how much it will cost to get an exemption from the Securities Commission. But the analysis is very poor and it does not include the impact on the costs of the general purchaser of securities. I would have thought that would be quite an important feature of any analysis that would be done. 
The third issue I would like to talk about is the fact that there is nothing in this legislation to deal with one of the major crises with securities in this country that the Government is doing nothing about and that is the number of people who sold their houses to trusts and companies which would then provide them with the security of an income stream as a result of the transfer of the title of their houses. I have people in my electorate as will most members who were approached by promoters by investment advisers who said that if they gave them their title to their homes they would in turn give them a guaranteed income stream for the next 3 years—that they would use that title to issue securities and create money in order to pay them. Hundreds and hundreds of people have fallen for that scam. 
Dail Jones 
: And lawyers have let them do it. 
Hon TONY RYALL 
: Lawyers and investment advisers have let them do it. In fact I tell Mr Jones that most of those people did not see their lawyers and that was the problem. Most of them did not see their lawyers and they were sucked in by those investment advisers those promoters of these securities. 
It does not seem that the Government is doing much on that. I have made some inquiries of the Ministers involved and there is no sense of urgency to assist those people to recover their homes. There is no action being taken by the Securities Commission that I am aware of to help those people get back their homes. They have been ripped off by people holding out false securities and the Securities Commission should be in there boots and all—not just saying that they are trusts and it is all too difficult. It has been going on for 3 years now and nothing has been happening. If the Securities Commission and this Government are determined to have some prosecutions they should prosecute those people who have ripped off the homes of people—tradespeople blue-collar people ordinary New Zealanders—who have scrimped and saved for 40 years to get a house then are sucked in by some conman. But the Government does nothing to assist them. We need in terms of this legislation to find out from the next Government speaker what will be done about the securities issued to those people in various parts of the country. 
Also there are a number of questions to be answered by Ministers about the role of investment advisers. The Government has a couple of options in the bill about how to deal with investment advisers. One is the quite stringent disclosure regime set out in the legislation and the alternative is the use of occupational licensing. What is an investment adviser? Is it the individual who provides the investment advice or is it the company or the sharebroker for which that individual works? The Government needs to realise that increasing numbers of people are handing over their financial security to investment advisers. There are considerable questions to be asked about the backgrounds of many of these people. Most who are high profile for example are perfectly legitimate investment advisers who deal with people’s retirement savings and their life-savings but others need further investigation. The issue of whether the adviser is the individual or the company has significant impact as well. A burden and an onus needs to be put on the employers of investment advisers to make sure that their investment advisers are performing within an appropriate standard. 
In summary my contribution today is to highlight to Ministers that they themselves need to know what is in this bill rather than their just reading the departmental speech. Ministers deal with securities every day depending on their responsibilities. We have seen the Prime Minister breach the Securities Act. We have seen Jim Anderton prevent the issuance of securities because of something he said. It is important that once this bill is passed Ministers are given a lesson on what not to say and what they can say. 
DARREN HUGHES (Labour—Otaki) 
: 
 I rise to take a brief call in the first reading which will refer the Securities Legislation Bill to the Commerce Committee. It is an omnibus bill that amends the Securities Act the Securities Markets Act and the Takeovers Act as well as the Takeovers Code so I am quite comfortable with that. 
DAIL JONES (NZ First) 
: 
 As comfortable as the junior Government whip may be with this bill there is a little bit more to it than he has told the House. 
Darren Hughes 
: Leave it to the select committee. 
DAIL JONES 
: Yes it could be left to the select committee. However this bill apart from the explanatory note has 134 pages. To expect the Opposition parties in this House just to concede this debate on Wednesday at 11.28 p.m. is far too much for this Labour Government to expect. As my colleague Brent Catchpole said in his very fine speech in this particular legislation one finds that investors breaching insider-trading laws face up to 5 years in jail under sweeping new proposals to beef up the law. However up until now no one has been found liable for insider trading since the Act came into effect. So it is bit of a pyrrhic piece of legislation if the penalties are all increased but no one at this stage has ever been found guilty of anything in terms of it. 
Research has shown that enforceable insider-trading laws could increase trading volumes so the need to beef up our insider-trading legislation becomes apparent. They say that insider-trading laws are complicated difficult to enforce and easy to avoid. The Government hopes that this bill will deter misconduct in the markets and make New Zealand a more attractive investment destination. What is this Government’s solution? Just bring in an Australian-type model. And really why must we copy Australia? There have been any number of commentators on the New Zealand situation who have said that there is no need for us to mimic Australia—why can we not do something that is more appropriate to New Zealand? I would expect that that is one of the things that the select committee would have a good look at. 
For example I note that the Securities Commission general counsel Liam Mason has said that the bill would give the commission more power to take action in situations where previously only investors had been able to and the commission would have simpler and firmer laws and more powers to enforce them. But once again so far no one has been convicted in New Zealand. Of course when we look at the Australian situation and what has happened over there only the flamboyant stockbroker—as the person was described—Rene Rivkin has been jailed for insider trading in Australia during the past 10 years. The threat of jail in addition to a fine can only give those contemplating the use of inside knowledge an extra incentive to pause for thought. 
But of course the real problem I guess is the test that is imposed in order to find someone liable under this legislation. While the test remains that of “beyond reasonable doubt” clearly it will be very difficult to find someone guilty. Of course as Stephen Franks has indicated in his speech if people have come to an arrangement then there is no encouragement for them to take the matter to the Securities Commission. 
The other test that is usually available in civil law is a test of the balance of probabilities. As a member of New Zealand First—a party that really likes to get tough on people who try to rip off the community—I have to wonder whether consideration could be given to putting in an easier test to find someone liable such as the test of balance of probabilities. I hope the select committee will give some thought to this. I can see Mr Brent Catchpole nodding. I am sure he will give some thought as to whether a balance of probabilities test is possible. That will give the committee something to think about rather than it being fairly comfortable with the present situation which is very very hard to prove. 
How is it proved? We have the Securities Commission and the evidence that is necessary there. What about the funds available to the Securities Commission? I understand that currently the commission has a total budget of $7 million. I am told that the Australian Securities and Investments Commission has a budget of A$191 million. Depending on when one considers the translation of money values that is close to NZ$200 million today. One cannot get much for $7 million. It has been a struggle in Australia to get even one conviction on a $200 million budget. I have to ask whether this is really a waste of time in so far as insider trading is concerned. Are we just throwing money away? Do we perhaps have to change the test to try to achieve a result with the present lack of resources and the very high test that is required? 
Is the Government really serious? Are the stock exchange and the people who want to curb these problems really serious? I see for example that someone at Chapman Tripp has said: “These new powers do have the potential to curb the enthusiasm of offerers targets major shareholders and certainly their PR advisers.” I am quoting Roger Wallace a securities lawyer at Chapman Tripp. 
Even that is set out in modest legal terms. That is just the potential. He is not saying that we are going to catch them now; he just says that the powers have the potential to curb enthusiasm. Clearly we are not approaching this particular problem—if there is one—with enough resources for the Securities Commission. 
Some of the issues mentioned by Tony Ryall were those I was interested in considering. I was looking at page 58 of the explanatory note and wanting to discuss the question regarding investment advisers and brokers. It seems so easy today to throw up one’s shingle or sign and call oneself an investment adviser or investment broker. All those companies seem to have people working for them going out and giving advice. What really needs to be done is to make sure that the people who part with their money get a real indication of whether they will actually make any sort of profit on the transaction. 
Time and time again as we all know it is only the company that makes any money. It is only the investment adviser who makes any money. It is only the investment broker who makes any money. Often people who put their money into these transactions do not even get their capital back and the whole situation is not good enough in so far as the simple blue-collar tradesman is concerned as mentioned earlier by Tony Ryall. 
I will skip over that because I want to discuss a couple of other issues before time runs out. The bill is such a big one that one would think we would have more time on it rather than it being rushed through in this way. 
I was interested in the takeovers asset threshold on page 52 of the explanatory note and the question of compliance costs arises. It is good how in legislation today efforts are made to try to set out what those costs may be. On page 48 of the explanatory note we read: “For a person taking over a company newly caught by the provisions the total additional costs are estimated to be between $40000 and $75000 depending on the size of the company and the complexity of legal and independent merits advice required.” Those of us who have relatives or friends working in the banking and corporate law business will feel that this is another Christmas present to lawyers and advisers. Here quite baldly is an additional $40000 to $75000 available depending on the size of the transaction. Under the heading “Takeovers Act asset threshold” on page 52 it states: “the compliance costs associated with making a takeover bid under the Takeovers Code are estimated to be approximately $15000 to $35000 for legal advice (depending on the complexity of the takeover) and approximately $8000 to $13000 for mailing and printing costs:”. With $8000 to $13000 for printing costs obviously there is a lot of money to be made in these areas. 
This bill is a very complicated piece of legislation comprising 130-odd pages. I am confident that the select committee will give full consideration to it. We look forward to the submissions that will be made available to the select committee and the very many amendments that will inevitably be made. I am concerned of course that once again the Government has put up some legislation that in order to make it easy in the Committee stage is drafted in only a couple of parts. For lawyers who have to try to understand the legislation when it comes out it will be pretty difficult for them to follow. 
Hon RICK BARKER (Minister for Courts) 
: 
 That member spoke so brilliantly that he has worn me down. I accept that the bill should be supported by this House and I commend it to every member. 
Bill read a first time. 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I move  
That the Securities Legislation Bill be referred to the Commerce Committee. 
referred to Commerce Committee 
A party vote was called for on the question  
That the motion be agreed to. 
Ayes 106 
New Zealand Labour 51; New Zealand National 24; New Zealand First 13; Green Party 8; United Future 8; Progressive 2. 
Noes 9 
ACT New Zealand 9. 
Motion agreed to.