Exchange tightening the rules

Press, 21 July 1988, Page 23

Exchange tightening the rules

The New Zealand Stock Exchange widens enforcement of its regulations in proposed rule changes being circulated to brokers and other groups for comment.

The exchange says that it has no practical sanction for breaches other than suspension of a company’s shares from trading.

The draft proposes that shareholders be enabled to use the Contracts (Privity) Act, 1982, to enforce exchange listing requirements as though they were part of a contract

between the company and that person. Company articles will have to provide rights to shareholders under the Contracts (Privity) Act, and will have to stipulate that companies will at all times comply with the listing requirements. This will in effect create a supplementary contract to reinforce the enforceability by investors of requirements intended for their benefit, the exchange says. Other proposed changes include:

® Every listed company will have to lodge a bond.

probably $200,000, which will be used for costs of any investigation prompted by its contract.

© Companies which list by buying existing shell companies will have to issue a profile with virtually the same information as a prospectus (at present they have to provide little information since a prospectus is not required). ® The second board will be replaced by a non-stand-

ard board for companies or securities that do not meet main-board requirements. These companies will require a paid-up capital of at least $1 million, and have at least 100 members of the public holding a minimum of 15 per cent of the shares.

® Companies seeking listings on the main board will need a paid-up capital of SIOM, and for each type of share issued at least 200 public shareholders must hold 25 per cent of the shares, or 500 members of the public must hold 15 per cent.

® A comapny will be allowed to initiate a transaction involving the issue of scrip only if its registrar does not have any documents awaiting registration which have been in- the company’s hands for more than seven days. ® A company not listed on any overseas exchange and listed in New Zealand must have at least two directors resident in New Zealand, a New Zealand contact address, a New Zealand share registrar, and have a New Zealand

resident secretary. O Shareholder approval will be required first where buy or sell transactions involve more than 50 per cent of shareholders’ funds.

© A listed company will not be able to issue options with voting rights (except at meetings of option-holders). 0 Compliance requirements are extended to the directors of listed companies' subsidiaries.

The proposals will increase protection for minority shareholders. Open-ended approval will no longer be given to non-pro rata issue of shares to existing shareholders. This will apply where the existing shareholders do not know the identity of those to whom the shares are being issued and where the conditions of issue have been criticised.

People who have a personal interest in procuring shareholder issues will not be able to vote on such resolutions.

The exchange will also have the power to order separate class meetings to approve resolutions where it

considers this is needed to protect minorities from majority voting power on proposals that would be at the expense of the minority. • The proposals tighten up the supply of information to the exchange. Companies will be required to treat all relevant information as a valuable property to be used strictly for the over-all benefit of the company and shareholders generally. They are required to release all relevant information to the exchange immediately “it ceases to have greater value to the company ... for the information to remain confidential.” The information must be released to the exchange no later than it is received by any person who “is not bound by corresponding obligations of confidence with which that person is likely to comply” (that is, is not a company insider). The proposals bring the New Zealand requirements more into line with Australian Stock Exchange rules. Definitions introduced are:

© “Associated persons," drawn from the Australian take-over code. This is intended to prevent skirting of requirements by subsidiaries, nominees, family or business associates, or others "likely to act in concert with the people primarily subject to the requirements.” © "Relevant information,” which has three elements — that a company is not responsible for care of information which is already public knowledge; that company information will be deemed to be public knowledge if it is publicly available in a form "substantially as usable as the form in which it is available to the company;” that the information be “price sensitive,” that is, be likely to affect the price of quoted securities materially. The exchange says that the Securities Commission and the Law Commission are reviewing the law affecting take-overs and mergers and the Commission’s review of insider trading law is likely to result in legislation later this year.