Two measures of stock market development discussed so far provide mixed evidence for New Zealand. Although there is low market capitalisation, ownership does not appear to be particularly concentrated by international standards.

This section explores existing international measures of investor protection.

La Porta makes a useful distinction between two types of investor protection: Meanwhile, regulators can serve as public protectors of investor rights by investigating actions contrary to minority interests again on the part of insiders or their agents , issuing and enforcing remedying orders, and sometimes seeking criminal sanctions in court.

La Porta constructs an index of private protection by asking lawyers in a sample of countries including New Zealand about a situation in which a hypothetical "Mr. James" arranges a transaction between two firms in which he has a controlling stake Djankov and La Porta et al The private protection index reflects the requirements applicable to this transaction in each country:.

La Porta presents a public protection index based on the powers of the regulatory body with responsibility for overseeing the stock market. Note that none of the components of the private protection index reflect sanctions that might be imposed by a regulator or court on Mr.

James for any wrongdoing; as noted above, these measures fall under the rubric of public protection.

New Zealand gets the highest score for private protection compared to other countries but ranks near the middle of the pack on the public protection index. Some significant legislative changes have been launched in New Zealand since then, in particular the Securities Markets and Institutions Bill; the Securities Legislation Bill and the Review of the Securities Act of currently in progress as part of a broader Review of Financial Products and Providers.

However, the La Porta data is very useful because it allows for reasonably rigorous international comparisons.

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Investor Protection and the New Zealand Stock Market International comparisons of investor protection. International comparisons of investor protection Two measures of stock market development discussed so far provide mixed evidence for New Zealand.

India ranks 7th on investor protection; New Zealand on top - yzyjifoh.web.fc2.com

The private protection index reflects the requirements applicable to this transaction in each country: How much information does the controlling shareholder have to reveal before the transaction? Does the law require a review by independent accountants or other experts? Can the controlling shareholder or the board of directors which may have been elected by the controller approve the transaction without consulting minority shareholders?

Access to redress in court: How easy is it for minority shareholders to prove wrongdoing in court after the transaction?

How easy is it for the minority shareholders to convince the court to void the transaction and hold Mr. James liable for damages?

OECD Countries Source: Public protection La Porta presents a public protection index based on the powers of the regulatory body with responsibility for overseeing the stock market. Are there any restrictions on the ability of the central government to fire or hire the chief officers of the supervisory body? Is the supervisor able to focus on stock market regulation alone or is it also responsible for other issues such as the banking sector?

Can the supervisor issue regulations regarding primary offerings or stock exchange listings or does this power reside elsewhere eg, with Parliament? Does the supervisor have the power to command documents and testimony from controlling shareholders, accountants or other relevant parties? Does the supervisor have the power to order market participants to undertake corrective action eg, for insufficient disclosure? Does the supervisor have the power to impose non-criminal sanctions eg, fines?

The New Zealand Securities Commission has, since its inception, been closely focused on stock market issues — ie, it does not have responsibility for banking sector supervision as is the case in some other countries. However, La Porta gives the Commission low marks for independence because the government has broad powers to fire and hire Commission members.

Little has changed in this regard since La Porta also gives low marks on supervisory independence to countries with parliamentary systems — notably Canada, Australia, New Zealand and the United Kingdom — while awarding high scores to countries with greater separation between executive and legislative branches of government eg, the United States, where commissioners are appointed by the president, but approved by the Senate.

Unlike its counterparts in Australia, the United States and United Kingdom, the Commission has no power to issue its own rules.

Foreign investment in New Zealand - yzyjifoh.web.fc2.com

Parliament retains full responsibility for rule making. This also has not changed since But while La Porta gives the Commission low marks on rule making powers, there could be advantages where Parliament has overall responsibility, as it is charged with considering wider community and economic interests other than purely regulation of the securities markets and institutions. The Commission had very little power in this area as of The Securities Market and Institutions Bill proposes to give the Commission the power to make a range of orders including prohibition and disclosure orders.

The Securities Legislation Bill introduces a further range of banning orders.

As of , accountants and brokers could not be held criminally liable in the case of a prospectus or accompanying financial statements that is misleading or omits material information. The Securities Legislation Bill introduced criminal sanctions for insider trading, market manipulation offences, and investment advisers that recommend illegal offers of securities.

Substantial civil pecuniary penalties were also introduced for misstatements in a registered prospectus. Previously the only remedy was compensation for those who suffered loss. Notes [15] See Djankov and La Porta et al and La Porta A - Z Research and Policy Working Papers Analytical Papers Treasury Staff Insights: Rangitaki Treasury Papers Policy Perspectives Papers Productivity Papers Conferences and Workshops A - Z by Subject A - Z by Title A - Z by JEL Classification Number A - Z by Author Disclaimer for Research and Policy Publications Email Alerts Publications Committee Guidance and Instructions About Treasury Briefings to Incoming Governments Information Releases OIA Responses Media Statements, Speeches and Guest Lectures Reviews and Consultation.