Conflict of interest at NZX highlighted

Potential conflict of interest between NZX's regulatory and commercial functions is highlighted in the annual review of sharemarket operator NZX by the Securities Commission.

NZX gets a good report and the commission notes action on past issues it has raised. NZX now makes available on its website attachments to company announcements without the need to make a request and has abolished the 20-minute waiting period before general release of the details of company announcements.

The report notes concern about the risk of potential conflicts between NZX's regulatory and commercial functions as it expands its commercial activities. "While we are not aware of any such conflicts at this time, we will continue to review this issue in our future oversight review of NZX," it said.

Demutualised exchanges around the world have taken different approaches to ensure separation of regulatory and commercial functions. While models differ, a consistent standard is that the head of regulation is completely autonomous from any other executive function.

The NZX board has made a joint delegation for regulatory activity to the chief executive and the head of supervision. The head of supervision undertakes the day-to-day management of the supervisory function and the chief executive has accountability for the supervisory function.

"This dual delegation remains of concern to the commission. While this delegation is in place, there remains a potential for conflict to exist," the report says.

It also notes that current law has no provisions for resolving differences between NZX and the commission, which may be a matter for the Government to consider in a review of the Securities Act next year.

- NZPA