FMA gives NZX thumbs up but some pointers
A growing number of complaints of possible conflicts of interest at the NZX have led the Financial Markets Authority to recommend greater transparency at the exchange.
The push for greater disclosure was a central theme of the yearly general obligations review of the NZX released by the FMA this morning.
While the FMA was comfortable with the handling of conflicts, it was aware of growing concern among broking firms and observers, the review said.
"FMA emphasises that it had not, either in this review or otherwise, seen an instance of undue influence on NZX's regulatory decisions," the review said.
"Notwithstanding the framework that NZX has in place, FMA believes there is a growing perception that the regulation function may not always be seen to be impartial when investigating complaints or potential breaches that have a significant association with NZX."
This concern was evidenced by an increased number of complaints to the FMA and swelling media commentary about potential conflicts at the exchange. If unchecked this could lead to diminished confidence in the market, the review said.
FMA chief executive Rob Everett said this morning that the review had focused on agreed actions that could be taken by the NZX to improve this area of its operations.
"Not everyone has the advantage we have in seeing what is done on a daily basis," he said.
"We felt very strongly that part of our mandate is confidence in markets. We've got a train of IPOs and fairly buoyant markets, so we thought this was the right time for the exchange to step up and improve."
Discussions over the review had been forthright, Everett said.
"Both on an ongoing basis, and as part of these reviews, there's been some quite rigorous exchanges of view between the two organisations and that's the way it should be," he said.
The NZX has agreed to establish a conflicts committee for the board and delegating regulatory decisions to a regulatory governance committee featuring more independent members.
The NZX declined to discuss the review with Fairfax Media, but said in a statement that chief executive Tim Bennett welcomed the pass mark for meeting statutory obligations. Some of the recommended actions had already been implemented.
"Maintaining trust in the integrity of the markets we operate is core to NZX," Bennett said in the statement.
"We continue to make investments in this area in response to changes in the market to ensure we run well regulated, fair, orderly and transparent markets.
"It is also critical in a vibrant market environment where we are seeing a record number of new listings and renewed interest in the market from retail investors and the public, that we clearly communicate to investors how NZX and FMA regulates the markets."
The review also called on the NZX to be more open about complaints of insider trading and market manipulation.
"The absence of information about NZX's identification of, and response to, potential market misconduct can be detrimental to investor confidence," the review said.
"There is a danger that the market and the public may view a lack of comment as a lack of action."
NZX had agreed to "enhance visibility of regulatory matters and enforcement activities," and also improve communication with complainants.