Review of penalties available within NZ Markets ... · REVIEW OF PENALTIES AVAILABLE WITHIN NZ MARKETS DISCIPLINARY TRIBINAL RULES AND PRCEDURES 20 APRIL 2015 3 of 18 1. Introduction

Review of penalties available

within NZ Markets Disciplinary

Tribunal Rules and Procedures Discussion Document

20 April 2015

REVIEW OF PENALTIES AVAILABLE WITHIN NZ MARKETS DISCIPLINARY TRIBINAL RULES AND

PRCEDURES 20 APRIL 2015 2 of 18

CONTENTS

1. Introduction ............................................................................................................. 3

2. Request for comments ............................................................................................ 5

3. Discussion topics and questions for submitters to consider .................................... 6

3.1 Penalty bands and financial penalties ........................................................................... 6

3.2 Naming of issuers and market participants ................................................................. 11

3.3 Penalties against directors and officers of issuers ...................................................... 12

3.4 Process for imposing penalties ................................................................................... 15

Appendix one..................................................................................................................17

Summary of Tribunal penalties for breaches between 2010-2014.................................17

Summary of categories of breaches referred to the Tribunal between 2010 -2014........19



1. Introduction

NZX is reviewing the penalty provisions in the NZ Markets Disciplinary Tribunal Rules (NZMDT Rules) and NZ Markets Disciplinary Tribunal Procedures (NZMDT Procedures) and is seeking submissions from interested parties.

Background in relation to NZ Markets Disciplinary Tribunal

The NZ Markets Disciplinary Tribunal (Tribunal) is an independent body established by the NZMDT Rules. The Financial Markets Authority (the FMA) approves its members who are appointed by NZX.

The membership of the Tribunal is broken into categories; listed issuer appointees, market participant appointees, legal appointees, clearing appointees, derivatives market appointees and members of the public.

NZX is responsible for the identification and referral of breaches to the Tribunal. The Tribunal does not engage in that task. The Tribunal is charged under the NZMDT Rules with hearing and determining matters referred to it by NZX in relation to the conduct of parties regulated by the NZX Participant Rules, the NZX Listing Rules, the NXT Market Rules, the NZX Derivatives Market Rules, the Clearing and Settlement Rules of New Zealand Clearing Limited (CHO) and the Fonterra Shareholders’ Market Rules (NZX’s Rules). Where the Tribunal finds a breach has occurred it may impose penalties.

The Tribunal is not an alternative disputes resolution body and has no mandate to make compensatory orders. The Tribunal may, however, make orders for restitution to a third party if a respondent has profited from its breach at that third party’s expense.

Additional information in relation to the Tribunal is available on the Tribunal’s website (www.nzx.com/NZMDT) and within the Tribunal User Guide available via that link

NZX’s approach to use of the Tribunal

NZX Regulation is responsible for monitoring compliance with NZX’s Rules. NZX Regulation receives information in relation to potential breaches of NZX’s Rules from a range of sources, including other NZX teams, external complainants and the FMA.

NZX Regulation does not refer every rule breach to the Tribunal and will only refer an alleged breach to the Tribunal if it considers that is warranted in the circumstances. Further information on NZX’s approach to referring cases to the Tribunal is outlined in NZX’s Enforcement Policy, which is available at the following link https://nzx.com/files/static/cms-documents/NZXEnforcementPolicy.pdf.

NZX Regulation reports to the Tribunal annually in relation to its enforcement activities. These reports are included within the Tribunal’s Annual Reports, which are available at the following link https://nzx.com/NZMDT/annual-reports

A high level summary of NZX Regulation’s recent referrals to the Tribunal is as follows:

http://www.nzx.com/NZMDT

https://nzx.com/files/static/cms-documents/NZXEnforcementPolicy.pdf

https://nzx.com/files/static/cms-documents/NZXEnforcementPolicy.pdf

https://nzx.com/NZMDT/annual-reports



Year Breaches identified

Cases referred to the Tribunal

2012 75 5

2013 107 9

2014 114 18

Please note that some cases referred to the Tribunal involved more than a single breach

NZX established the Regulatory Governance Committee in 2013. A key function of that committee is to review the quality of regulatory decisions made by NZX Regulation, including enforcement decisions. The Regulatory Governance Committee does not have any authority to make regulatory decisions and is not involved in day-to-day operations, management functions or decision making.

Current review of penalties

Given that the Tribunal has now been in existence since May 2004, NZX considers that it is an appropriate time to review the penalty provisions available to the Tribunal to ensure that they remain fit for purpose. The goals of the review are to:

• Seek feedback in relation to whether NZX has been seeking appropriate penalties in relation to breaches of NZX’s Rules;

• Ensure that the NZMDT Rules and NZMDT Procedures provide for appropriate penalties in relation to breaches of NZX’s Rules, and to ensure that there is appropriate guidance in relation to application of penalties; and

• Consider implementation of an infringement notice regime to improve the manner in which penalties are imposed for minor breaches.

NZX proposes to conduct the review in two stages. NZX is seeking initial feedback from interested parties in relation to the topics outlined within this discussion document. NZX then plans to consult on any particular changes which may be developed following consideration of feedback received in response to this discussion document. NZX proposes the following timetable for the review:

• Publication of discussion document 17 April 2015

• Submission deadline 29 May 2015

• Development of any proposed amendments June/July 2015

• Consultation on proposed rule amendments Q3 2015

• Rule amendments to become effective Q4 2015



2. Request for comments NZX seeks your comments in relation to this current review of penalties to meet the goals of the review. In order to receive this feedback, NZX seeks answers to the questions outlined in Section 3 of this consultation document.

Please provide comments in electronic format.

NZX may publish comments received. Please indicate in your submission if you have any objection to the release of information contained in your submission. Any release would be without attribution to a named party.

Please send your submission before 29 May 2015 to [email protected]

If you have any queries in relation to this consultation document, please contact:

Hamish Macdonald

NZX Head of Policy

[email protected]

(09) 308 3701

mailto:[email protected]

mailto:[email protected]



3. Discussion topics and questions for submitters to

consider

3.1 Penalty bands and financial penalties

Current position

The current NZMDT Rules allow NZX to seek financial penalties against issuers, market participants and certain responsible individuals within market participants for breaches of NZX’s Rules1. The ranges of financial penalties available are as follows:

• For issuers – a fine between $0 - $500,0002

• For market participants – a fine between $0 - $500,000, plus an additional fine three times the amount of any profit made by the market participant3

The NZMDT Procedures provide a guide as to the appropriate financial penalties to be imposed by the Tribunal for breaches of NZX’s Rules. This is achieved by outlining penalty bands and guidance in relation to when these penalty bands should be applied4.

These NZMDT Rules and NZMDT Procedures are available on the Tribunal’s section of NZX’s website and are available at the following link https://www.nzx.com/NZMDT/rules-publications

NZX has reviewed the financial penalties applied to breaches referred to the Tribunal over the last four completed calendar years in order to assess the appropriateness of existing penalty bands. A summary of this information is attached as appendix 1 (case summary). This case

summary outlines the number of breaches referred to the Tribunal under each of the existing penalty bands and the broad range of penalties which have been imposed for these breaches (part 1 of the case summary). The case summary also provides a separate overview of the most common categories of breaches referred to the Tribunal (part 2 of the summary of cases) for the same period. NZX has observed the following from this information:

• Penalties imposed by the Tribunal have generally fallen within the lower end of the penalty bands guidance, and the lower end of overall available financial penalties;

• Cases referred to the Tribunal can generally be grouped into broad categories. However, these broad categories do not always align with the existing penalty bands and some of the existing penalty bands are not currently being used;

• The guidance currently available in relation to the application of particular penalty bands is unclear.

A weakness with the current approach of determining the appropriate penalty band by reference to the category of breach is that it may not always be appropriate for all breaches falling within a particular category to be treated the same way. For example, a one off minor administrative

1 Section 11 of the NZMDT Rules

2 Please note that under NZMDT Rule 11.6.1 (c) the maximum financial penalty that can be imposed on an issuer via a Summary Hearing Procedure is

$250,000. This is discussed further on page 10 of this discussion document.

3 Including clearing and derivatives participants These financial penalties are also available for responsible individuals within market participants (i.e.

natural persons)

4 Section 11 of the Procedures

https://www.nzx.com/NZMDT/rules-publications



breach may not be deemed as serious but if this formed one of a number of breaches (or was a repeat breach), which together indicated systemic compliance failings, then this overall conduct may be viewed more seriously and may warrant a harsher penalty.

Given that the level of severity of a breach is likely to depend upon a number of factors, other than simply the type of obligation which has been breached, it might be appropriate to consider describing penalty bands more broadly. If that approach was adopted, the category of breach could be highlighted as an example of the type of breach which would fall within the particular penalty band but would not be the sole determinative factor. A proposed approach might look as follows.

Alternative penalty bands based on overall conduct

Issuer breaches:

• Penalty band 1 – Minor breaches – breaches which indicate minor compliance failings and which generally have no material market or shareholder impact

• Penalty band 2 – Breaches of medium severity – breaches which indicate more than just a minor compliance failing and which have the potential, but which have not necessarily had, a material market or shareholder impact

• Penalty band 3 – Serious breaches – intentional breaches and breaches which indicate significant compliance failings and/or which have had a material market or shareholder impact (such as periodic reporting or failing to obtain shareholder approval for a transaction)

Market participant breaches:

• Penalty band 1 – Minor breaches –breaches which indicate minor compliance failings and which have no material market or client impact

• Penalty band 2 – Breaches of medium severity – breaches which indicate more than just a minor compliance failing and which have the potential, but which have not necessarily had, a material market or client impact

• Penalty band 3 – Serious breaches – intentional breaches and breaches which indicate significant compliance failings and/or which have had a material market or client impact (such as market manipulation or improper use of client assets)

A benefit with this approach is that it would allow greater flexibility in relation to the financial penalty which could be imposed based upon an assessment of all of the circumstances of a case. The factors to be considered would include the type of obligation breached, the market impact, whether it is a repeat or deliberate breach, whether the matter has been self reported, and the overall compliance history of the respondent. NZX notes that it currently takes this approach when assessing whether to take enforcement action in relation to a particular matter, as outlined in NZX’s Enforcement Policy.

Under this option the bands could be described by reference to the proposed penalty. The harshest penalties would be reserved for breaches falling within the highest penalty bands – for example, loss of accreditation for a market participant or cancellation of listing of an issuer.

In order to determine the appropriate level of financial penalties which should apply to penalty bands, NZX seeks feedback below, including whether the Tribunal has been imposing appropriate penalties for recent cases referred to the Tribunal.



Targeted benchmarking

NZX has considered the penalty regimes of other comparable disciplinary regimes and notes that the following ranges of financial penalties are available under those regimes.

New Zealand

Financial penalties available under the Financial Markets Conduct Act 2013 (FMCA):

• $50,000 pursuant to an infringement offence

• For other fines: a maximum fine of $500,000 to be imposed on an individual or $2.5m in any other case. The fines are imposed by the High Court following application from the FMA

• For financial penalties following breach of a civil liability provision:

- the consideration for the transaction that constituted the contravention; and

- 3 times the amount of gain made, or loss avoided, by the person who contravened the civil liability provision; and

- $1,000,000 in the case of an individual and $5m in any other case.

Financial penalties under the Companies Act 1993:

• For offences by persons (i.e. companies or individuals) penalties ranging from maximum financial penalties of $5,000 for minor offences and $200,000 for offences of a serious nature

• For other specific offences by directors, $5,000 for offences of a minor nature and $50,000 for offences of a serious nature

Australia

ASX is able to impose financial penalties on its market participants5. The financial penalties available to ASX are up to $1m per offence. Financial penalties against issuers are dealt with by referral to the Australian Securities & Investments Commission (ASIC).

ASIC has a number of options for imposing penalties, these include:

• Punitive action for the most serious misconduct in the form of criminal remedies against individuals and entities. These include prison terms and/or financial penalties ranging between A$865 and A$765,000 (or three times the benefit obtained by the misconduct);

• Civil financial penalties of up to A$1,000,000 for companies and A$200,000 for an individual.

As an alternative to criminal and civil proceedings, ASIC is also able to issue infringement notices for breaches of the market integrity rules. The market integrity rules are rules made by ASIC under its delegated statutory authority, that apply to market operators, market participants (including issuers), other prescribed entities and financial products traded on the relevant markets, and for which ASIC is responsible for supervising compliance of.

5 These are broadly similar to the type of participants described within NZX’s Participant Rules



Infringement notices are intended to facilitate the payment of relatively small financial penalties in relation to relatively minor contraventions under the ASIC Act (unconscionable conduct and consumer protection provisions). However, they also allow the imposition of higher financial penalties in relation to breaches of the market integrity rules and Corporations Act 2001 (specifically the continuous disclosure obligations).

If ASIC believes that there has been a breach of the market integrity rules, the matter is referred to the Markets Disciplinary Panel (MDP) to consider issuing an infringement notice. The MDP has been set up by ASIC as an independent body to make decisions on issuing infringement notices.

The maximum pecuniary penalties for breaches of ASIC’s market integrity rules are set out in the following table:

Tier Penalty amount set for rule

Maximum penalty that the court may

order a person to pay

Maximum penalty that a person may

pay under an infringement notice

Tier 1 $20,000 $20,000 $12,000

Tier 2 $100,000 $100,000 $60,000

Tier 3 $1,000,000 $1,000,000 $600,000

Infringement notices may also be issued where an entity has breached the continuous disclosure obligations set out in the Corporations Act 20016. The amount of the penalty in these circumstances will be $33,000, $66,000 or $100,000, depending on the circumstances and whether there has been a previous breach of the relevant provisions.

NZX observes that the broad financial penalties currently available under the NZMDT Rules and NZMDT Procedures are not significantly out of line with the penalties available to other comparable disciplinary regimes. NZX also notes that for the most serious breaches of NZX’s Rules the matter is likely to be referred to the FMA for enforcement action under the FMCA or Companies Act 1993 – for example, continuous disclosure breaches and market manipulation breaches7.

If submitters considered that the existing range of financial penalties remained appropriate, it might simply be a case of outlining what the financial penalties should look like for revised penalty bands. These might look as follows:

Financial penalties based on overall conduct (as described at page 7 above)

Both issuer and market participant breaches:

• Penalty band 1 – Up to $50,000

• Penalty band 2 –Up to $100,000

• Penalty band 3 –Up to $500,000

6 sections 674(2) and 675(2) of the Corporations Act 2001

7 NZX is obliged to refer matters to the FMA which are considered to be a significant contravention of NZX’s Rules, pursuant to s 352 of FMCA



Impact of Hearing Procedure on financial penalties

Whether a case is referred under a Summary or Full Hearing Procedure under the NZMDT Rules impacts the financial penalty which can be imposed by the Tribunal. For cases involving issuers, the financial penalty is capped at $250,000 under the Summary Hearing Procedure8. There is no such cap for cases involving market participants. A Tribunal can direct an oral hearing under either procedure and the only other material difference under hearing procedures is that a respondent has longer to respond under the Full Hearing procedure9. This raises the question of whether it is necessary to retain this distinction.

Other comments in relation to financial penalties

NZX has also been considering whether it is appropriate to seek financial penalties in all cases referred to the Tribunal. Concerns have previously been raised that financial penalties imposed on issuers have the potential to adversely impact shareholders twice i.e. any adverse impact on shareholders from the initial conduct leading to the breach, and the indirect impact on shareholders of any fine imposed on an issuer.

There may also be breaches that an issuer has less control over, such as breaches by issuers of corporate governance requirements where a director has resigned on short notice. NZX would welcome any general comments from submitters on the factors they consider which might indicate that a financial penalty is not appropriate.

8 NZMDT Rule 11.6.1 (c)

9 NZMDT Rule 7.2

Questions for submitters to consider

1. Are the maximum financial penalties currently available to the Tribunal under the NZMDT Rules and NZMDT Procedures sufficient?

2. With regard to the penalty bands and financial penalties currently available, has the Tribunal been imposing appropriate penalties in recent cases?

3. Do submitters agree with the proposal to amend penalty bands according to the overall conduct, having regard to the aggravating and mitigating factors as well as the type of obligation breached?

4. Do submitters agree with the suggested ranges of financial penalties for the proposed amended penalties bands highlighted above?

5. Do submitters agree that the distinction between the Summary Hearing and Full Hearing procedures should be removed? If so, should the longer timeframes under the existing Full Hearing procedure apply to all cases?

6. What type of factors should exist for conduct to be considered a serious breach? For example, would the existence of a material client or market impact be sufficient for a breach to be considered serious regardless of the overall conduct.

7. What factors do submitters consider, if present, might indicate that a financial penalty is not appropriate for breaches of NZX’s Rules?



3.2 Naming of issuers and market participants

Background

The NZMDT Rules and NZMDT Procedures currently allow NZX to seek a public censure of an issuer or market participant in relation to breaches of NZX’s Rules. NZX’s approach to penalties against directors of issuers is discussed separately in section 3.3 below.

When referring a matter to the Tribunal, NZX’s position is that it will generally seek the public censure of an issuer or market participant in relation to a finding of breach of NZX’s Rules. NZX considers this information important for stakeholders in New Zealand’s capital markets because:

• There is a general public interest in respondents compliance with NZX’s Rules;

• It is potentially relevant to investment decisions;

• The public naming of parties who have failed to meet their obligations under NZX’s Rules acts as a useful deterrent to other issuers and market participants;

• The general publication of information about NZX’s enforcement activities can help to educate the market in respect of NZX’s Rules and requirements.

Although NZX will generally seek public censures of issuers or market participants in relation to breaches of its rules, NZX does not do so in relation to some of the minor breaches referred to the Tribunal. For example, NZX has not sought public censures in recent cases where there has been a delay in an issuer releasing an allotment notice10, or where a market participant has not met the requirement to send a contract note to a client the day following execution of a trade11.

In addition, the Tribunal has published a policy in relation to its approach to naming market participants. That policy is available as an appendix to the Tribunal’s User Guide and is available at the following link https://nzx.com/files/static/cms-documents/NZMDT%20User%20Guide%20-%2014%20July%202014.pdf.

Full details of the penalties obtained for cases referred to the Tribunal, including public censures, are outlined in the Tribunal’s Annual Reports, which can be found at the following link https://www.nzx.com/NZMDT/annual-reports

NZX Regulation could maintain its existing approach to seeking public censures of respondents. This would require no amendment to existing rules and would allow NZX to retain discretion in relation to when it seeks a public censure. Respondents would continue to be able to oppose any request for public naming through the Tribunal process. The Tribunal would also retain discretion in relation to when it uses its powers to censure or name respondents. However, if this approach is maintained, it may be appropriate to consider incorporating the Tribunal’s existing policy on naming market participants into the NZMDT Rules or NZMDT Procedures.

Another option is to include additional guidance within the NZMDT Rules and NZMDT Procedures outlining when respondents should be named. It may be possible to describe the type of conduct, perhaps with reference to redefined penalty bands as discussed above, which would not attract a public censure. Similarly, it may be possible to identify mitigating factors, which if apply in relation to a particular case, would indicate that a public censure was not

10 Pursuant to NZX Main Board Listing Rule 7.12.1

11 Pursuant to NZX Participant Rule 15.17.1

https://nzx.com/files/static/cms-documents/NZMDT%20User%20Guide%20-%2014%20July%202014.pdf

https://nzx.com/files/static/cms-documents/NZMDT%20User%20Guide%20-%2014%20July%202014.pdf



appropriate. A benefit of this approach would be that more certainty could be provided in relation to the circumstances in which the Tribunal might impose a public censure, and therefore more certainty in relation to the circumstances in which NZX would seek such outcome. This would require specific guidance in these areas.


1. Do submitters agree that additional guidance should be provided in relation to when public censures are appropriate in relation to breaches of NZX’s Rules?

2. For which type of conduct should issuers not be named in relation to breaches of NZX’s Rules?

3. For which type of conduct should market participants not be named in relation to breaches of NZX’s Rules?

4. In light of responses to (3) above, does the Tribunal’s policy on the naming of market participants remain appropriate? If so, should this policy be incorporated into the NZMDT Rules and/or NZMDT Procedures?

3.3 Penalties against directors and officers of issuers

Background

The NZMDT Rules currently permit the Tribunal to publicly censure directors or issue public statements that identify directors or officers in relation to breaches by issuers12. However, these individuals do not assume separate legal obligations under NZX’s Rules, and NZX cannot join them as separate parties to proceedings, or impose financial penalties on them.

Even though there are powers to do so under the NZMDT Rules, NZX does not generally seek the naming of directors or officers in relation to issuer breaches and there have been no recent examples of the Tribunal making such orders. NZX would only be likely to do so if there were unique circumstances in relation to the conduct of a director or officer that resulted in a breach by an issuer.

NZX has received feedback that it might be appropriate for the Tribunal to impose financial penalties on directors or officers in respect of issuer breaches. This issue raises the question of the obligations which should be imposed on such individuals and the circumstances in which a director or officer should be held responsible for the actions of an issuer. There are no specific obligations for directors and officers under NZX’s Rules currently, so to seek to impose penalties on these individuals would require amendments to create enforceable obligations against these individuals. This would be quite a significant change to NZX’s Rules so if submitters supported this approach, and NZX determined to make such a change, NZX would need to deal with this aspect of the current review as part of a broader consultation process.

12 NZMDT Rules 11.5.1(b) and (d) allow the Tribunal to issue a public statement that a director or former director of an issuer has acted in breach of

the Listing Rules.

NZMDT Rule 11.5.1(e) allows the Tribunal to state that a director or former director of that issuer is censured by the Tribunal

NZMDT Rule 10.5.1(g) allows the Tribunal to publicly state that the retention of office of a director, former director or executive officer of an issuer is

prejudicial to the interests of investors



Clearly this would also require amendments to the NZMDT Rules and it would be appropriate that such individuals should be joined as separate parties to the Tribunal proceedings to ensure that they have the ability to properly defend themselves. It is arguable that this should also be the case currently if NZX were to seek to name a director or officer under the existing provisions within the NZMDT Rules noted above.

A penalty regime imposing personal liability on directors and officers for issuer breaches may act as a disincentive for individuals to participate in the management and governance of listed issuers.

NZX has considered other regimes which impose liabilities upon directors, such as the penalties which can be imposed on directors pursuant to the Companies Act 1993 - see section 3.1 above (page 9). This raises a question of whether there is a need for a separate penalty regime for directors within the NZMDT Rules.

It appears that ASX is not able to impose penalties on directors of issuers but these individuals could be pursued by ASIC for breaches of legislation. Similarly, the FMA is able to pursue directors of issuers for breaches of legislation in New Zealand.


1. Is NZX’s approach to seeking the naming of directors and officers of issuers under the current NZMDT Rules appropriate (i.e. only by limited exception)?

a. Should NZX be required to join such individuals to a proceeding before exercising such powers?

2. NZX is seeking initial views on whether the Tribunal should be able to impose financial penalties on directors and officers of issuers in relation to breaches of NZX’s Rules?

a. If so, in what circumstances?

b. Which individuals within an issuer should be penalised?

c. What type of penalties should be sought e.g. public censure of individuals and/or financial penalties?

3.4 Process for imposing penalties

Background

In order to impose any penalty on an issuer or market participant for a breach of NZX’s Rules, NZX must refer the matter to the Tribunal for hearing and determination. NZX is considering introducing an infringement notice regime to reduce the time and cost for dealing with minor breaches. NZX considers these breaches would generally have the following characteristics:

• There is undisputed evidence of a rule breach;

• A penalty is appropriate in relation to that breach; and

• The breach is less serious and therefore attracts a lower penalty.



NZX considers that it may be appropriate to introduce an infringement notice regime for breaches of NZX’s Rules with the above characteristics, under which NZX is permitted to impose fines on respondents subject to limitations on these powers. Recent examples of the types of breaches which could be dealt with in this manner would be issuer breaches of the timing requirements in relation to release of allotment notices or participant breaches of the requirement to send clients contract notes13.

Matters to be dealt with in this manner could be determined by the size of the proposed penalty and it may be possible to align the types of matters which can be dealt with in this way with revised penalty bands, as discussed under section 3.1 above. For example, matters to be dealt with in this manner could be confined to just those breaches falling within the lowest penalty band (and therefore lowest financial penalty range). It might also be appropriate to cap potential fines imposed via infringement notices at $10,000 or $20,000.

There could be a number of benefits to such an approach, particularly in terms of reducing the time and cost for dealing with minor breaches. NZX notes that a disadvantage with this approach is that respondents would not get the automatic right to a hearing before the Tribunal. However, NZX considers that this risk could be mitigated with effective controls by ensuring that the breaches which may be dealt with by this approach are restricted to relatively small financial penalties for minor breaches and by creating a process by which a respondent can have a matter reviewed by the Tribunal if it disagreed with the outcome proposed by NZX under this approach.

13 Examples of these types of breaches are NZMDT 6 & 7/2014 and NZMDT 13-15/2014


1. Do submitters support the introduction of an infringement notice regime for dealing with minor breaches of NZX’s Rules?

2. Do submitters agree that infringement notices should be restricted to just those breaches within the lowest penalty band and capped at a maximum fine of $20,000?

3. If submitters support an infringement notice regime, should these notices be issued by the Tribunal or should NZX have the right to issue infringement notices, subject only to a right for a respondent to seek a review by the Tribunal?

4. If submitters support an infringement notice regime, what other controls should be imposed upon exercise of such powers?

5. What benefits might there be to an infringement notice regime as proposed?

6. What risks might there be to an infringement notice regime as proposed?

7. Do submitters consider that respondents issued with infringement notices should be publicly identified?



Appendix one

Summary of penalties applied by the Tribunal for

breaches referred between 2010-2014

Part 1: The table below provides a summary of issuer breaches referred to the Tribunal between 2010 and 2014 under existing penalty bands and the financial penalties applied in respect of those breaches14:

Penalty Bands

Penalty band range

Number of breaches referred

Penalties applied

Average penalty applied

1

Up to $5,000

None

N/A

N/A

2

Up to $10,000

4

$3,750 - $5,000

$4,688

3

Up to $20,000

12

$5,000 – 15,000

$8,875

4

Variable

None

N/A

N/A

5

Up to $500,000

2

$15,000

$15,000

6

Up to $500,000

17

$0 – 150,000

$40,765

14 Refer to NZMDT Procedure 11 for further details in relation to the penalty bands, including a description of the existing bands

https://nzx.com/files/static/cms-documents/NZMDT%20Procedures%2005%20March%202013.pdf

Refer to the NZMDT Annual Reports for 2010 – 2013 for further details in relation to the cases considered by the Tribunal between 2010 - 1013,

https://www.nzx.com/NZMDT/annual-reports. The Tribunal’s Annual Report for 2014 will be published in April 2015.

Please note that some of the cases referred to the Tribunal dealt with more than just a single breach. Where the Tribunal has applied separate

financial penalties, these breaches have been counted individually in the statistics above. Where a single financial penalty has been applied for a

number of breaches, the financial penalty has been applied to the penalty band in which all of the breaches arose or to the category for the most

significant of those multiple breaches

Please also note that the majority of the breaches discussed within the table above were referred via the Summary Hearing Procedure and therefore

the effective penalty cap for those breaches was $250,000

https://www.nzx.com/NZMDT/annual-reports



The table below provides a summary of participant breaches referred to the Tribunal between 2010 and 2014 under existing penalty bands and the financial penalties applied in respect of those breaches:

Penalty bands

Penalty band range


15

Penalties applied16

Average penalty applied

1

No monetary penalty

None

N/A

N/A

2

Up to $4,000

2

$6,500- 13,900

$10,200

3

Up to $10,000

6

$0 – 3,500

$2,083

4

Up to $20,000

None

N/A

N/A

5

Up to $50,000

14

$5,000 – 40,000

$19,153

6

Up to $150,000

None

N/A

N/A

7

Up to $200,000

None

N/A

N/A

8

Up to $500,000

None

N/A

N/A

15 Both cases referred within penalty band 2 involved a single financial penalty being applied for multiple breaches

16 One case referred to the Tribunal in 2014 within penalty band 5 was withdrawn by NZX without a penalty being applied by the Tribunal. This case

has been excluded for the purpose of calculating the average penalty applied but is included for the purpose of disclosing the number of breaches

referred



Summary of categories of breaches referred to the

Tribunal between 2010 -2014

Part 2: The table below provides a summary of issuer breaches referred to the Tribunal between 2010 and 2014, and the financial penalties applied in respect of those breaches, grouped in accordance with the most common categories of breaches 17:

Category of breach

Financial penalties applied


Current applicable penalty band

Continuous disclosure $30,000 - $150,000

4 6

Periodic Reporting/other disclosure

$15,000 - $100,000

13 6

Breaches relating to obtaining shareholder approval

$0 - $15,000 2 5

Corporate Governance $5,000 - $15,000

12 3

Other breaches (e.g. late allotment notices, failure to obtain NZX approval for a NoM)

$3,750 - $5,000

4 2

17 Refer to NZMDT Procedure 11 for further details in relation to the penalty bands, including a description of the existing bands

https://nzx.com/files/static/cms-documents/NZMDT%20Procedures%2005%20March%202013.pdf

Refer to the NZMDT Annual Reports for 2010 – 2013 for further details in relation to the cases considered by the Tribunal between 2010 - 1013,

https://www.nzx.com/NZMDT/annual-reports. The Tribunal’s Annual Report for 2014 will be published in April 2015.

Please note that some of the cases referred to the Tribunal dealt with more than just a single breach. Where the Tribunal has applied separate

financial penalties, these breaches have been counted individually in the statistics above. Where a single financial penalty has been applied for a

number of breaches, the financial penalty has been applied to the penalty band in which all of the breaches arose or to the category for the most

significant of those multiple breaches

https://www.nzx.com/NZMDT/annual-reports



The table below provides a summary of participant breaches referred to the Tribunal between 2010 and 2014, and the financial penalties applied in respect of those breaches, grouped in accordance with the most common categories of breaches:

Category of breach

Financial penalties applied

Number of cases referred

18

Current applicable penalty band

Holding client funds

$0 - $25,000

3

5

Capital adequacy

$15,000 – 30,000

2

5

Failing to act on client instructions

$5,000 - $30,000

3

5

Failing to maintain orderly market/error trades

$10,000 - $30,000

2

5

Dealings by employees and prescribed persons

$10,000- $40,000

4

5

Acting without authorisation

$0

1

3

Contract notes

$1,000 - $3,500

4

3

Trade reporting

$6,500 – $13,900

2

2

18 One case within penalty band 5 was withdrawn by NZX without a penalty being applied

Documents

Review of penalties available within NZ Markets ... · REVIEW OF PENALTIES AVAILABLE WITHIN NZ MARKETS DISCIPLINARY TRIBINAL RULES AND PRCEDURES 20 APRIL 2015 3 of 18 1. Introduction