NEW ZEALAND EXCHANGE LIMITED ( NZX ) REGULATIONS

Transcription

1 NEW ZEALAND EXCHANGE LIMITED ( NZX ) REGULATIONS

2 CONTENTS 1. DEFINITIONS AND ADMINISTRATION 1 2. CONDUCT 8 3. CLIENT ASSETS AND CLIENT FUNDS ACCOUNT CLIENT ORDERS SHORT SELLING FASTER ON-LINE TRADING SYSTEM DELIVERY AND SETTLEMENT PROTECTION OF SHAREHOLDER BENEFITS TRANSFERRING SECURITIES CAPITAL ADEQUACY NZX FIRMS' ACCOUNTING RECORDS AUDIT OF NZX FIRMS' BOOKS INSPECTION 22

3 1. DEFINITIONS AND ADMINISTRATION 1.1 Unless otherwise defined in Regulation 1.2, the definitions in the Listing Rules and the Business Rules shall apply to capitalised terms in these Regulations. 1.2 Definitions: In these Regulations: Acting as Principal has the meaning set out in Regulation 2.2; Adjust Session means a market phase during which: the quantity for each existing order may be adjusted (except where it may improve a FASTER Dealer s position); and orders may be withdrawn but new orders may not be entered; Business Rules means NZX Limited Business Rules, as amended from time to time; Buyer and Seller means the buying NZX Firm and the selling NZX Firm for Trades or contracts between Participants; CIT has the meaning set out in Listing Rule ; COD or Claim of Delivery means a transaction in FASTER whereby a Seller initiates a delivery of Securities to settle a Trade, in exchange for a contemporaneous transfer of funds; COT has the meaning set out in Listing Rule ; Common Shareholder Number or CSN means a unique alphanumeric identifier issued by NZX to a Security holder that uniquely identifies a holder of Securities on all FASTER registries; Compliance Officer means the person appointed to identify and report to the Managing Principal any suspected breaches of NZX Firm s internal procedures and policies, in addition to ensuring compliance with the Business Rules, Regulations and Code of Practice and any other statutory requirements; Consultant includes a person acting in an advisory or related capacity in relation to Securities, but does not include a person providing general services such as information technology or building services; Released: May of 91

4 Conventional Sale means any sale of Securities where the seller has a presently exercisable and unconditional right to vest such Securities in the buyer; COT or Client Outward Transfer has the meaning set out in Listing Rule Discretionary Account means a client account managed by an NZX Firm in which investment decisions may be made and acted upon without reference to the client; Enquiry Session means a market phase during which no bid or offer can be entered, amended, or withdrawn; FASTER means the Fully Automated Screen Trading and Electronic Registration system provided by NZX for trading, clearing, settling and registering Securities; FASTER Dealer means a person authorised under Regulation 6.16 to enter orders into FASTER on behalf of an NZX Firm; FASTER Transfer Clerk means a person authorised under Regulation 7.12 as a FASTER Transfer Clerk; Fund means the fidelity guarantee fund established under Rule 19 of Part A of the Business Rules; Guidance Note means guidance notes for these Regulations issued from time to time by NZX; Inspector means the person or persons appointed under Rule 17.1 of Part A of the Business Rules; International Marriage means a Marriage where: the transaction is carried out on a regulated market of a Recognised Stock Exchange; the Security in question is Listed both on a regulated market or a Recognised Stock Exchange and on facilities provided by NZX; and at least one party to the transaction is an overseas resident; Liquid Capital has the meaning set out in Regulation 10.3; Listing Rules means NZX Limited Listing Rules, as amended from time to time; Released: May of 91

5 Management means the directors, partners, principals, or appropriately qualified and competent senior executive staff of an NZX Firm; Market Day means the hours during which NZX is open for trading on a Business Day; Marriage or Crossing means a transaction where a FASTER Dealer acts on behalf of both buying and selling clients, or where the FASTER Dealer s NZX Firm is a beneficial owner of part or all of the Securities at any stage of the transaction; MPT or Mutual Participant to Participant Transfer means a transfer of Securities and funds contemporaneously between Participants; Normal Trading Session means a phase of the market during which bids and offers may be entered, and if opposing prices match or overlap, a trade will automatically be executed. Entering, amending and withdrawing an order can occur during this phase; Off-Market Trade means any business transacted outside FASTER, and includes a Marriage, a special sale in the Retail Debt Market, or any transaction between NZX Firms conducted outside Normal Trading Sessions; OIT or Owned Inward Transfer means transfer of Securities from a Participant s Owned Shareholder Account to its FASTER Transfer Account; OOT or Owned Outward Transfer means the transfer of Securities from a Participant s FASTER Transfer Account into its Owned Shareholder Account; Opening Session means a phase of the market immediately following a Pre-Opening Session, where Trades are created from matching orders, using a pre-set algorithm when prices overlap; Overseas Marriage means a Marriage: (d) (e) (f) that is not an International Marriage; where at least one of the parties for whom NZX Firm is acting is resident outside New Zealand and may also include a member of an Recognised Stock Exchange; and that is not a transaction where the relevant NZX Firm is the beneficial owner of all or part of the Securities at any stage of the transaction; Released: May of 91

6 Owned Shareholder Account means a shareholder account on the register that is owned and controlled by a Participant, but excludes a FASTER Transfer Account; Participant, in relation to FASTER, means a person authorised as such by NZX; Payments System means the system used by NZX for the transfer of cleared funds; PPT or Participant to Participant transfer means a transfer of Securities from one Participant s FASTER Transfer Account to another Participant s FASTER Transfer Account for no consideration; Pre-Opening Session means a phase of the market during which bids and offers may be entered, amended or removed, but Trades will not be created when prices meet or overlap; Prescribed Level of Liquid Capital has the meaning set out in Regulation 10.10; Prescribed Person means: (g) (h) (j) (k) (l) NZX Firm; or a principal, director or shareholder of NZX Firm (including an NZX Broker or NZX Associate Broker); or an employee, agent or Consultant of NZX Firm; or immediate families of any such principals, directors, shareholders, employees, agents and Consultants; or family companies and family trusts of any one or more of such principals, directors, shareholders, employees, agents, Consultants or their immediate families; or any corporation or company whose control is not independent of control of NZX Firm; Professional Investor means a person whose principal business is the investment of money or who, in the course of and for the purposes of his or her business, habitually invests money; Regulations means these regulations for NZX Firms, as amended from time to time; Released: May of 91

7 Retail Debt Market means the market established in FASTER for trading Debt Securities; Settlement Cut-Off Time means 4.00pm on a Business Day, or such other time as NZX may from time to time designate; Settlement Day means a Business Day on which NZX is open for processing settlement transactions; Short Sale means a sale of any Security where at the time of the sale, the Seller does not have a presently exercisable and unconditional right to vest the security in the Buyer, and related expressions shall have a corresponding meaning; Special Marriage means a Marriage: (m) (n) where the consideration is not less than $3,000,000, or in special cases a lesser sum approved in writing by NZX; or where the FASTER Dealer is acting as an agent, principal or on a combined agency/principal basis for a portfolio of Equity Securities, subject to the following conditions: the portfolio: (aa) has a value of not less than $3,000,000; and (bb) comprises Equity Securities of at least 6 different Issuers, each with a value of not less than $250,000; or the portfolio has a value of not less than $5,000,000; or (o) where the transaction involves the initial disposal by the FASTER Dealer of the underwriter s or sub-underwriter s commitment. For the purposes of this definition portfolio of Equity Securities means a transaction involving the Equity Securities of more than one Issuer. Special Order Facility means the facility provided by NZX for matching orders (subject to any conditions specified by NZX) using a special trading code established for that purpose; Takeovers Code means the takeovers code in the Takeovers Code Approval Order 2000; Released: May of 91

8 Trades in relation to FASTER, means all trades executed by Participants for settling Securities against funds through FASTER, in accordance with Regulation 7 and the rules of FASTER; Transfer Account has the meaning set out in the Securities Transfer (Approval of FASTER System) Order 2001; 1.3 Interpretation: Unless the context requires otherwise: (iii) (iv) (v) (vi) (vii) (viii) the headings are inserted for convenience only and shall not affect the interpretation of these Regulations; words importing persons include firms, corporations and partnerships; words importing one gender include the other genders words importing the singular include the plural, and vice versa; reference to any legislation or legislative provision includes any statutory modification or re-enactment of, or legislative provision substituted for, and any statutory instrument issued under, that legislation or legislative provision; references to dollars or $ are references to New Zealand dollars; where the day on, or by, which anything is to be done is not a Business Day, that thing must be done on or by the succeeding Business Day; and all references to a subsidiary or holding company of a person, which is not a company incorporated under the Companies Act 1993, shall be construed as if that person were such a company. The Board: shall, if requested by an NZX Firm, NZX Broker, NZX Associate Broker or a Participant; and Released: May of 91

9 may at any other time provide interpretations of the Regulations, and NZX will notify NZX Firms, NZX Brokers, NZX Associate Brokers and Participants and the Secretary accordingly. 1.4 Notices: A notice, approval, consent or other communication (notice) under these Regulations must be in writing, and must be left at, or sent by prepaid ordinary post to, the address of the addressee, or sent by facsimile to the facsimile number of the addressee. Notices to: (iii) (iv) an NZX Firm shall be sent to its principal Stockbroking Office; a Participant or a client of an NZX Firm shall be sent to that person s last known address; an NZX Broker or NZX Associate Broker shall be sent to that individual; in each case, at the address and facsimile numbers notified to NZX from time to time. A notice is deemed to be received if delivered by hand, on receipt; if sent by post, on the third day after posting; and if sent by facsimile, on production of a transmission report by the machine from which the facsimile was sent which indicates that the facsimile was sent in its entirety to the facsimile number of the recipient, provided that in the case of a notice delivered by hand or facsimile, if the date of delivery or transmission is not a Business Day, or the delivery or transmission is made after 5.00pm on a Business Day, then the notice will be deemed to have received on the next Business Day. 1.5 Amendment to the Regulations: The Board may from time to time decide to amend these Regulations. Released: May of 91

10 The Board shall give written notice of any amendment of these Regulations to NZX Firms, Participants, and to the Secretary (as defined in section 2 of the Brokers Act 1908). Amendments to the Regulations become effective on the date specified by the Board: provided that the date specified is no less than 20 Business Days after all NZX Firms and Participants have received notice of the amendment under Regulation 1.5; and subject to the New Zealand Stock Exchange Restructuring Act 2002 and any other relevant laws. 2. CONDUCT 2.1 Disclosure of Interest: Where a Prescribed Person has any direct, indirect or professional interest in any Issuer, Securities or other matter which is the subject of a possible transaction involving any other person (other than another NZX Firm) that Prescribed Person shall not advise or deal in relation to that transaction unless that interest has been fully and fairly disclosed in writing to the other person. An NZX Firm that trades, as principal, in Securities or other items prior to releasing a communication to clients or other persons which refers to those Securities or other items, shall disclose that fact in the communication. The principals of an NZX Firm issuing a communication to clients or other persons shall be collectively responsible for including in the disclosure required under Regulation 2.1 the personal holdings of any employee (or any other person otherwise contracted by NZX Firm) involved in preparing the communication or who may be involved in making client recommendations arising from it. 2.2 Acting as Principal: Acting as Principal means acting in a transaction where an NZX Firm, or a Prescribed Person, is a beneficial owner of part or all of the Securities at any stage in the transaction. Released: May of 91

11 An NZX Firm shall not, as principal, deal in any Securities with a person not an NZX Firm or a member of a Registered Stock Exchange or an authorised public securities dealer (as defined in the Securities Transfer Act 1991) unless NZX Firm informs the person with whom it is dealing that it is acting in the transaction as principal and not as agent, as soon as possible after becoming aware of that fact. In addition to the requirements of Regulation 2.2, an NZX Firm that, as principal, enters into a sale or purchase of Securities transaction with a person who is not: (iii) an NZX Firm; or a member of a Registered Stock Exchange; or an authorised public securities dealer (as defined in the Securities Transfer Act 1991); shall state in the contract note that it is acting in the transaction as principal. (d) An NZX Firm that acts, as agent, for both parties in a transaction and charges both parties for the transaction shall disclose in the contract note to each party that it is charging both parties. For the purposes of this Regulation, contract notes may be printed with a statement that NZX Firm may be acting for both parties and being paid by both parties. 2.3 Duty of Care: NZX Firms and their employees (including NZX Brokers and NZX Associate Brokers): (d) when providing advice to clients, have a duty of care to ensure that advice is properly researched; must not initiate rumours and must ensure that they properly qualify any information passed to clients which has not been personally or independently verified; must at all times maintain the standards of objectivity and professionalism that are expected, including when dealing with a client who may be reluctant to accept or act on the advice provided; and when making comments to news media or other parties, whether for quotation or otherwise, on any matters relevant to Securities, finance, Issuers, NZX Firms, NZX or the industry Released: May of 91

12 generally, shall always identify themselves and, in the case of NZX Brokers and NZX Associate Brokers, their NZX Firm, and shall not request or agree that their identity be withheld from any reporting of those comments. 3. CLIENT ASSETS AND CLIENT FUNDS ACCOUNT 3.1 Definitions: For the purposes of this Regulation 3: Client Assets means (iii) (iv) Securities held by NZX Firms in their Transfer Accounts and in their Client Funds Accounts; Securities purchased or sold by an NZX Firm for or on behalf of a client; funds received and held by NZX Firms for undelivered buy contracts; and funds received and held on account. Outstanding Broker Obligations means an agreement or arrangement between an NZX Firm and its client where: (iii) Securities of the client have been transferred by NZX Firm to settle a sale or proposed sale of the Securities, and NZX Firm has not paid the amount owing or that will be owing by it to the client on that sale or proposed sale; or the client has paid money to NZX Firm for the purchase of Securities and the Securities have not been transferred to the client (or as directed by the client); or the client has paid money to NZX Firm for any other purpose and the amount paid is required by Regulation 3.6 to be held by NZX Firm in its Client Funds Account and NZX Firm has not applied the amount paid (less permitted fees or commissions) for that other purpose; and Client Funds Account means a trust account held by an NZX Firm at a Bank for the benefit of NZX Firm s clients for its Outstanding Broker Obligations. Released: May of 91

13 3.2 Client Assets to exceed Outstanding Broker Obligations: Total Client Assets held by an NZX Firm must at all times match or exceed NZX Firm s total Outstanding Broker Obligations. 3.3 Client Assets held on trust: Each NZX Firm shall hold its Client Assets on trust for its clients at all times. All Securities recorded as being held in an NZX Firm s Transfer Account shall be held by NZX Firm on trust for its clients with uncompleted contracts. 3.4 NZX Firms to have Client Funds Accounts: An NZX Firm shall open and maintain a Client Funds Account. If an NZX Firm has more than one Client Funds Account, this Regulation 3 shall apply as if the Client Funds Accounts were a single Client Funds Account. 3.5 Requirements for Client Funds Accounts: NZX Firms: must obtain from the Bank holding the Client Funds Account a written acknowledgement of the trust status of the account, and must ensure that the words Client Funds Account appear in the title of the Client Funds Account; must ensure that Client Funds Accounts are not overdrawn; and may not use funds in their Client Funds Accounts as security for any obligation of NZX Firm, or of any other person. 3.6 Payments into Client Funds Account: Each NZX Firm shall pay into a Client Funds Account upon receipt: all amounts received from, or on account of, any person for Securities purchased or to be purchased, unless the amount received relates to Securities held on trust for that person in NZX Firm's Transfer Account or a nominee account, or already transferred to that person; all amounts received for, or on account of, any person for Securities sold and not paid to or as directed by that person; and all application monies or call money payable or any other payment received from, or on account of, any person and not Released: May of 91

14 paid direct to the person entitled to such application or call money. 3.7 Funds received outside bank trading hours: All amounts that are required to be paid into NZX Firm s Client Funds Account but which are received by NZX Firm after bank trading hours shall be paid into a Client Funds Account on the first Business Day following the date of receipt. 3.8 Application of funds: All amounts required to be paid into a Client Funds Account under Regulation 3.6 shall be held upon trust and applied: (d) in reimbursing NZX Firm for any amount paid by it in settling the purchase of Securities for clients, including transfer to an intraday same day funds settlement account operated by NZX in FASTER for true DVP settlement where it is to be applied to the payment against the transfer of such Securities to NZX Firm s Transfer Account; in payment to selling clients of the sale price for Securities transferred into NZX Firm s Transfer Account by the client; in payment to any other person for whom funds have been held in the Client Funds Account; and in payment of brokerage and other charges properly payable to NZX Firm by its clients for transactions under Regulations 3.8 and. 3.9 Methods of payment: Payments from a Client Funds Account for Securities sold, except as provided in Regulation 3.9, shall be made directly to a bank account with a Bank in the name of the selling client (as recorded in the register of the Securities), or by means of a nonnegotiable cheque or other bank instrument made out in the name of the selling client and delivered to the address of that client, and: shall never be made in cash (for amounts in excess of $10,000); and may be made to another account only on the written instruction of the client entitled to the payment or a person who holds a power of attorney from the client Distribution of Client Assets: If an NZX Firm ceases to carry on business as a broker and is unable to honour its Outstanding Broker Obligations, the Client Assets will be held as a pool of unallocated Released: May of 91

15 assets for clients to whom NZX Firm has Outstanding Broker Obligations and the applicable Securities will be sold and the proceeds, together with funds in its Client Funds Account, paid to such clients pro-rata in relation to the amount owing by NZX Firm to them for its Outstanding Broker Obligations No restriction on ordinary dealing: The trusts referred to in this Regulation 3 do not restrict an NZX Firm dealing with Securities held in its Transfer Account or money in its Client Funds Account in accordance with these Regulations and in the ordinary course of its business. 4. CLIENT ORDERS 4.1 Know your client procedures: Sufficient information must be obtained from clients other than Professional Investors to ensure that appropriate investment advice and Securities recommendations are given. As a minimum requirement, NZX Firm must record the following information before transacting any business with or for any person: (iii) (iv) (v) (vi) (vii) name and title; home address; mailing address (if different to home address); Common Shareholder Number (where available); bank account details or settlement arrangements; IRD number; either one or more of the following, unless the client is unwilling to provide such information or NZX Firm vouches for the identity of the client: (aa) (bb) (cc) passport number; driver s licence number; date of birth; and Released: May of 91

16 (viii) details of those persons authorised to transact business on behalf of the client, including: (aa) (bb) (cc) name; relationship to the client; and contact telephone number. In the case of a company, NZX Firm must record the following information before transacting any business with or on behalf of the company: (iii) (iv) (v) (vi) (vii) (viii) (ix) name of company; company number (New Zealand or overseas as applicable); registered address; mailing address (if different); contact numbers; name of company officers or persons authorised to place orders and a copy of the authority to act; IRD number (if registered in New Zealand); Common Shareholder Number (where available); and bank account details or settlement arrangements. (d) In the case of a trust, NZX Firm must record the following information before transacting any business with or on behalf of the trust: (iii) (iv) name of trustees; name of person/s authorised to place orders on behalf of the trust; registered address; mailing address; Released: May of 91

17 (v) (vi) (vii) (viii) (ix) contact numbers; IRD number; Common Shareholder Number (where available); bank account details or settlement arrangements; and copy of trust deed. (e) If an NZX Firm has a relationship with a financial intermediary under which it deals exclusively with that intermediary and not with the underlying investor, NZX Firm must record the following information before transacting any business with that person: (iii) (iv) (v) (vi) (vii) (viii) name of the intermediary; if a company, relevant details as required under Regulation 4.1; if a person, relevant details as required under Regulation 4.1; details of those persons authorised to transact business on behalf of the intermediary including name, position, contact telephone number and written authority; bank account details or settlement arrangements; copy of mandatory disclosure document under the Investment Advisers Disclosure Act 1996; Common Shareholder Number for each underlying investor; and If a Common Shareholder Number is not held, NZX Firm must obtain two of the relevant prescribed forms of identification required under Regulation 4.1(vii) from the intermediary in respect of the underlying investor for the purpose of applying for a Common Shareholder Number. 4.2 Discretionary Accounts: Released: May of 91

18 An NZX Firm may only manage or operate a Discretionary Account for, or on behalf of, a client if NZX Firm has first obtained from the client a written authorisation signed by the client setting out the terms and conditions under which the Discretionary Account should be operated (including, in particular, clearly specifying the parties respective rights and obligations). An NZX Firm shall not effect an excessive number of transactions of purchase or sale of Securities on behalf of clients for which NZX Firm manages or operates a Discretionary Account. If an NZX Firm manages a Discretionary Account for a client, NZX Firm shall prepare and forward reports and information, either quarterly or at agreed intervals with the client, setting out: (iii) (iv) a portfolio valuation of all Securities held on behalf of the client; a schedule of purchases and sales relating to the reporting period showing details of the total costs incurred, separated if requested; a schedule of all cash related transactions of income, dividends, foreign exchange and settlements with case or bank accounts; and an end of year summary of income and dividends, including resident withholding tax, imputation credits, withholding tax and management fees. (d) This report must be forwarded to the client not later than 10 Business Days after the end of the period, unless NZX Firm and the account holder agree otherwise in writing. (e) An NZX Firm which operates a Discretionary Account for a client shall maintain a register, which shall include as a minimum the following information: (iii) the date on which the account was opened; the name and address of the client; the date of the client s written authorisation; Released: May of 91

19 (iv) the client s account number or numbers; and 4.3 Controls and procedures: (v) any qualifications, limitations or other client directions as to the disposition of the Discretionary Account or managed fund. Each NZX Firm must: ensure that representatives and employees are adequately supervised by suitably experienced and qualified persons; provide its representatives and employees with: (aa) (bb) written compliance and procedure manuals, setting out NZX Firm s procedures, and controls over those procedures, in all areas of its operations; and a detailed description of their duties, crossreferenced where appropriate with the compliance and procedures manual referred to above; (iii) nominate a suitable person as Compliance Officer with regular independent reporting to the Principal that NZX Firm complies with the relevant business and industry requirements. Compliance checks must include re-performing a selected random sample of orders booked in NZX Firm s computer system. Nominated Compliance Officers must not undertake any operational activity within NZX Firm that involves receiving, recording or processing orders. (d) 4.4 Staff training: All representatives and employees of an NZX Firm involved in providing advice to clients, receiving orders, executing trades and settling transactions: Released: May of 91

20 must be trained as appropriate to their duties and responsibilities to NZX Firm and to clients. Such training must cover the relevant parts of: (aa) (bb) (cc) (dd) the Business Rules and the Regulations; the Code of Practice; the Listing Rules; NZX Firm s own controls and procedures; (iii) must have ongoing training to ensure that they are kept up-to-date with changes in securities law, stock exchange and market regulation and practice; and must undergo such accreditation and/or receive such training as NZX may from time to time require. Those representatives and employees acting as FASTER Dealers and FASTER Transfer Clerks must receive training from an authorised NZX trainer and must be accredited on a biennial annual basis by NZX for these positions. 4.5 Client trading: NZX Firms must have procedures for referring to senior management of NZX Firm: all instances of suspected insider trading by a client. These procedures must include provision for recording all details of the incident, and subsequent action taken by NZX Firm; all complaints received by its employees and representatives from clients, written or verbal, in regard to the conduct of the employee, representative or firm in respect of dealings with the client. 4.6 Trading by representatives and employees: Representatives and employees of an NZX Firm who wish to deal in Securities must receive written authority to do so for each individual order from a senior member of the management authorised by NZX Firm s Principals for that purpose. This authority must be obtained: in advance of the order being effected; and Released: May of 91

21 if the representative or employee wishes to deal on behalf of Prescribed Persons. FASTER Dealers must not: (iii) enter orders on behalf of themselves or any associated person (as defined in the Listing Rules) or Discretionary Account on which they have authority; act as FASTER Transfer Clerks and vice versa; book trades in a pool account of NZX Firm, and must not have any responsibility for that activity unless the pool account is the house account of NZX Firm. (d) (e) All representatives and employees of NZX Firms must be made aware of NZX Firm s policies regarding trading by representatives and employees. An NZX Firm must institute procedures whereby it can monitor trading by its representatives and employees, and detect breaches of procedures promptly (within 24 hours). Representatives and employees of an NZX Firm are required to hold all Securities purchased for any account over which they have a controlling interest, discretion or controlling influence on investment decisions, for a minimum period of 10 Business Days except for Discretionary Accounts of persons who are not Prescribed Persons. (f) If, because of special personal circumstances, a representative or employee needs to sell Securities prior to the expiry of a hold period unrelated to market prices or events other than force majeure events recognised by NZX Firm, then an application may be made in writing to the Managing Principal, or his or her delegate authorised specifically for that purpose, seeking authorisation to place an order to sell the Securities. (g) NZX Firms must keep a register of all Securities in which they or their representatives and employees hold a Relevant Interest (as defined in the Securities Amendment Act 1988). The register should set out the following details: full description of Securities held; Released: May of 91

22 (iii) (iv) (v) date on which person began or ceased to have a Relevant Interest, or the date on which a change in the Relevant Interest occurred; number of Securities to which the Relevant Interest relates or related; full nature of the consideration where the Relevant Interest was acquired or disposed of or a change in the Relevant Interest occurred for valuable consideration; and name of the other person where the Securities were not registered in the name of the person in respect of whom the entry is made in the register. (h) NZX Firm must update this register within 10 days after NZX Firm becoming aware of any circumstance giving rise to a Relevant Interest existing or any change in Relevant Interest. 4.7 Allocation Policy: NZX Firms who pool orders or otherwise act as principal to clients must include in their terms of business and/or client agreements details of the policy they adopt in allocating Securities to buy and sell orders. Any trades manually booked to an NZX Firm s pool account must be independently checked by at least one other responsible person. If requested by a client, NZX Firm must give the client a statement of all the individual prices of the purchases or sales of the Securities for which that client placed an order which have been averaged under the firm s allocation policy. 4.8 Recording of client instructions: Where use is made of voice recording technology NZX Firms must promulgate policies for the use of voice recording of client instructions where voice recording is used. If voice recording is introduced by NZX Firm, voice recording should be applied universally to all categories of dealing and clients. Released: May of 91

23 (iii) Representatives and employees: (aa) (bb) must be advised that their deliberate avoidance of these policies would represent a serious breach of NZX Firm s operating procedures; must not have the ability to de-activate the voice recording system attached to their telephones. (iv) (v) No principal or employee of an NZX Firm may have access to voice recording tapes without the approval of, and in the presence of, the nominated Compliance Officer. If NZX Firm uses voice recording technology, the recording equipment and stored tapes must be located in a secure area where access is limited to: (aa) (bb) (cc) the nominated Compliance Officer; a delegate authorised in each instance by the Compliance Officer; and technical personnel provided that none of the above are persons whose conversation has been recorded. (vi) The Compliance Officer, or his or her delegate, must be present during any review of tapes. Editing of tapes is prohibited in all circumstances. Copies of voice recording tapes may only be made by suitably trained and authorised staff. Whether or not use is made of voice recording technology: NZX Firms must maintain an appropriate audit trail for all trades orders received for the purchase or sale of Securities. This may include deal tickets, written trade confirmations or copies of electronic instructions such as . The instruction details (in conjunction with the system recording client information) to be recorded shall include details of: Released: May of 91

24 (aa) (bb) (cc) (dd) (ee) (ff) (gg) (hh) (jj) (kk) identity of person receiving the order; date and time order received; name of the client; name of person providing instruction if different to the account holder; common Shareholder Number; description of security to be bought or sold and the number of Securities to be bought or sold; whether it is a buy or sell instruction; price limit or price related instructions; time limit on the order (if any), instructions for settlement; and any other relevant instructions. (iii) (iv) (v) All orders to buy or sell Securities taken by telephone must be read back to clients as a confirmation procedure, unless voice recording technology is used. Records of orders to buy or sell Securities must be uniquely numbered and retained for two years, whether or not the order was executed. NZX Firms must not record a client s FIN for any longer than is necessary to complete the transaction for which it is required, except for when this information is kept as part of a voice recording. 5. SHORT SELLING 5.1 Definitions: For the purposes of this Regulation 5, Margin Cover has the meaning set out in Regulation NZX Firms may short sell Securities only in accordance with these Regulations. Released: May of 91

25 5.3 Except as otherwise provided in this Regulation 5, the Business Rules and the Regulations shall apply to Short Sales as if they were Conventional Sales. 5.4 No NZX Firm may short sell any Security of an Issuer if the result of that Short Sale would be that more than 10% of the total number of issued Securities (according to records held and maintained by NZX of that Issuer) would be the subject of subsisting Short Sale contracts. If any Short Sale takes place resulting in the 10% limit being exceeded, then the Board may declare such sale to be void and cancelled, whether in total or to the extent that the 10% limit is exceeded. 5.5 No NZX Firm shall accept from a client a selling instruction which would be a Short Sale under these Regulations if NZX Firm has reasonable cause to believe that it would involve a Short Sale as prohibited by Regulation All net short positions of $50,000 or greater in value in each Security shall be identified and reported to NZX by the Seller before 9.00 a.m. each Market Day. Where NZX Firm is selling on behalf of a client, any Short Sale shall be designated as such on the contract note given to the selling client. 5.7 No NZX Firm may make a Short Sale on behalf of a client without having first obtained from that client margin of cover of at least 10% of the contract price of the Short Sale (Margin Cover). 5.8 Any Margin Cover may be provided in cash or in Quoted Securities or in a combination of both. 5.9 Additional Margin Cover shall be promptly required of a client of NZX Firm, and a client shall correspondingly be obliged to provide, further Margin Cover in the following circumstances: if the Issuer of any Security proposed or provided as Margin Cover is suspended, delisted, placed in receivership or liquidation or has its operations in any way restricted, either by NZX or by legal process, to the extent that the original Margin Cover has been reduced by the deduction of the suspended Security; or if there is a fall in the market price of any Security provided as Margin Cover, to the extent required to make up the shortfall Securities provided as Margin Cover shall be deemed to have a value of their market price less the risk based reductions as set out in Released: May of 91

26 Regulation 10.8 applying to the Current Assets of NZX Firms for capital adequacy purposes If there is a rise in the market price of a Security which has been short sold and is not yet delivered, the Seller shall, at the end of the Short Selling settlement period set out in Regulation 7.3, require the selling client to provide additional Margin Cover equal to at least 10% of the amount of the increase, provided that the Seller shall not be obliged to seek such additional cover until the rise exceeds 10% of the contract price of the Securities short sold If a short selling client fails to provide any Margin Cover, whether initially or as an additional demand, by the beginning of the next Normal Trading Session after the demand is made, NZX Firm acting for that client may proceed to close out the Short Sale at the client's risk and expense. If a profit results, NZX Firm shall account to the client accordingly No Short Sale may be made during a Normal Trading Session or before 5.00pm on any Market Day at a price lower than the last reported sale of the relevant Security except for Short Sales that are International Marriages or Special Marriages. Short Sales made after 5.00pm on any Market Day may be at a price agreed by Buyer and Seller No Short Sale of a Security may be made if NZX has received a notice of Restricted Transfer or an Acquisition Notice under Rule 4 of the Listing Rules in relation to that Security until: the transfer of Securities the subject of the Restricted Transfer has been completed or the notice of Restricted Transfer has been withdrawn in accordance with Rule 4 of the Listing Rules; the relevant offer under the Takeovers Code has lapsed or has been withdrawn; or the compulsory acquisition process under Rule 4.8 of the Listing Rules or Part 7 of the Takeovers Code has been completed The Board shall have power to prohibit or otherwise limit short selling in all or any Securities for such period and for such reasons as it may, in its absolute discretion, determine. Released: May of 91

27 6. FASTER ON-LINE TRADING SYSTEM 6.1 Introduction and Normal Trading Sessions: In general, the operation of FASTER during a Market Day comprises: (iii) (iv) (v) a Pre-Opening Session; an Opening Session; a Normal Trading Session; an Adjust Session; and an Enquiry Session. (d) (e) The scheduled times for each session during a Market Day will be notified by the Board from time to time. If the market is halted during a Normal Trading Session for whatever reason, NZX may extend a Normal Trading Session. If such a decision is made, NZX will advise this decision to all FASTER Dealers. A Trading Halt may be called during a Normal Trading Session in accordance with Regulation Any Trading Halt will be followed by an Opening Session. If there is a Trading Halt affecting all Quoted Securities, there shall be a 15 minute Pre-Opening Session prior to recommencing the Normal Trading Session. 6.2 Pre-Opening Session: During a Pre-Opening Session: FASTER Dealers may enter, withdraw or amend orders; and no orders shall be matched by FASTER. At the commencement of the Opening Session: orders shall be matched by FASTER in priority by price/yield and time of entry; and Released: May of 91

28 where orders in the Pre-Opening Session result in overlapping prices at the commencement of the Opening Session, FASTER shall match Trades and establish prices/yields according to procedures determined by the Board. 6.3 Obligations of NZX Firms: Each NZX Firm shall: keep and maintain records of the time and date of receipt of each client order as part of the accounting records required by Regulations 11 and 4.8; be solely responsible for the accuracy of details of orders entered into FASTER in accordance with the procedures for use of FASTER established by the Board; and ensure that only FASTER Dealers enter orders into FASTER. 6.4 Access to FASTER restricted to FASTER Dealers: Only FASTER Dealers may enter orders into FASTER. Each FASTER Dealer shall have a unique identification number and password to access FASTER. 6.5 Trading Operations: (d) (e) FASTER shall accept orders only during a Pre-Opening Session, a Trading Halt and a Normal Trading Session as set out in Regulations 6.1 and 6.2. In transacting with or on behalf of clients, FASTER Dealers must indicate to the client the current best bid and offer prices as reflected in FASTER. Immediately following a transaction for a client, written confirmation, including a unique number for the transaction, must be sent to the client. Each order entered into FASTER, unless it is a market order, must specify the Security, price/yield and quantity of the Security to be bought or sold. All orders entered into FASTER shall be accepted as firm and shall be matched by FASTER in the order of price and then time priority. Released: May of 91

29 (f) (g) (h) (j) (k) Each accepted order entry shall have a unique order number assigned by FASTER. A FASTER Dealer may withdraw an accepted order that remains outstanding. An accepted order that remains outstanding may be reduced (but not increased) in quantity by the FASTER Dealer without losing priority in the market. All orders may be matched partially or completely. All orders entered into FASTER by a FASTER Dealer for his or her firm, Acting as Principal, must result in change in beneficial ownership. If any FASTER Dealer is unable to enter bids or offers into FASTER during a Pre-Opening Session or a Normal Trading Session, the following procedures shall apply: the FASTER Dealer shall notify NZX as soon as practicable; and the FASTER Dealer may trade using another NZX Firm s facilities. 6.6 Minimum bids (price steps) and order value: Unless otherwise determined by NZX: minimum price changes: for shares and other Equity Securities shall be 0.1 cent where the price is less than 20 cents, and otherwise 1 cent; and for rights, options, warrants and index fund units, shall be 0.1c; minimum order value for a Quoted Debt Security is $1,000 face value; and minimum yield changes for Quoted Debt Securities shall be 0.005%. 6.7 Errors: Where a FASTER Dealer becomes aware of any error in the entry of a bid or offer and that bid or offer is matched before the error can be corrected, the following procedures shall apply: Released: May of 91

30 The FASTER Dealer, through his or her NZX Firm, shall immediately contact the other NZX Firm with whom the order was matched and obtain the agreement of that other NZX Firm to cancel the matched order. For cancellations during a Market Day: (iii) the FASTER Dealer must use the facility provided in the Trades screen of FASTER to request that the trade be cancelled. This will alter the trade status to Unconfirmed Buy if awaiting buy side confirmation, or Unconfirmed Sell if awaiting sell side confirmation; the counter party to the requested trade cancellation must confirm its agreement to cancel using the facility provided in the Trades screen in FASTER. This will alter the status of the trade to Unapproved Buy if awaiting buy side confirmation, or Unapproved Sell if awaiting sell side confirmation; and if the trade to be cancelled is a Marriage by NZX Firm, the status of the trade will change to Unapproved pending NZX cancelling the Marriage. (d) For cancellations after the end of the Market Day and for previous days cancellations, the FASTER Dealer must lodge with NZX a written notification stating the confirmed trade number, the date of sale, security type and quantity. This form must be counter signed by both parties to the trade. If the Buyer and Seller: agree, NZX shall approve the cancellation request and cancel the matched order, and the status of the trade will change to withdrawn ; do not agree, then the trade cancellation request will be rejected. (e) (f) Order priority in the market for the Security affected by the cancellation will not be re-established following a cancellation. Any dispute in relation to this Regulation 6.7 must be promptly referred to and investigated by the Managing Released: May of 91

31 Director or his or her delegate, whose decision shall be final and binding on both NZX Firms. (g) (h) The Managing Director or his or her delegate shall use their best endeavours to reach a decision on any such dispute promptly on the day on which the dispute is referred to them. The Complaints Committee may hear an appeal against the decision of the Managing Director and, if so, the decision of the Complaints Committee shall be final. NZX shall, from time to time, review the errors record of each FASTER Dealer and may refer errant FASTER Dealers to a Complaints Committee for disciplinary action. A FASTER Dealer who frequently commits dealing errors shall be liable to suspension from operating FASTER. 6.8 Marriages and Reporting: For all Quoted Securities: (iii) All Marriages must be reported through FASTER as one-sided negotiated deals, in accordance with the requirements of FASTER. Off-Market Trades effected after the close of the Market Day shall be reported during the next Pre- Opening Session. NZX Firms shall not accumulate or delay executing client Trades in order to transact and report Off- Market Trades or to avoid the obligations in these Regulations. For Equity Securities: Except as provided in Regulations 6.8 and (iii), all Marriages, [including Overseas Marriages], executed during a Normal Trading Session must be within the current quotations for that Quoted Security. International Marriages may be effected during a Normal Trading Session outside the current quotations for that Quoted Security. Released: May of 91

32 (iii) (iv) Special Marriages may be effected during a Normal Trading Session outside the current quotations for that Quoted Security. All Marriages executed during a Normal Trading Session shall be reported immediately through FASTER on the same Market Day, providing details of price and quantity involved. For Debt Securities: (iii) Sales of Quoted Debt Securities shall be reported through FASTER on the same Market Day or, if conducted after trading hours, before commencement of the next Normal Trading Session. The Seller is responsible for reporting off-market transactions between two Participants through FASTER. Such Trades should be reported in FASTER as two-sided negotiated deals. Off-Market Trades in Quoted Debt Securities should be reported as traded (ie including any broker margin or commission as determined by the nature of the trade). To facilitate trade reporting of Trades, Off-Market Trades in Quoted Debt Securities may be conducted outside the quotes prevailing in FASTER at the time of the trade. 6.9 Trading between NZX Firms to be in FASTER: No NZX Firm may effect a transaction in a Quoted Security with another NZX Firm outside FASTER during a Normal Trading Session unless that Trade is executed in the Retail Debt Market Close of trading: After the close of a Normal Trading Session: FASTER shall: be placed in an Adjust Session; and immediately after the end of the Adjust Session, be placed in an Enquiry Session. A FASTER Dealer may withdraw all bids and/or offers during an Adjust Session, and may re-enter those bids and/or offers in the following Pre-Opening Session. Such re-entered bids Released: May of 91

33 and/or offers will lose the priority they held at the time of their withdrawal Marriages after close of a Normal Trading Session: This Regulation 6.11 applies to all Marriages except International Marriages and Special Marriages. Where a FASTER Dealer wishes to action an order to buy or an order to sell Securities after the close of a Normal Trading Session, and until the commencement of the next Normal Trading Session, the FASTER Dealer may marry the order with an opposite order to sell or buy the Securities in accordance with the following procedures: if there are priority Buyers and priority Sellers at the close of a Normal Trading Session: the FASTER Dealer shall bid the Securities to all Sellers recorded in FASTER at the close of the Normal Trading Session, in order of priority from the lowest offer price up to, but not including, offers at the price at which the FASTER Dealer desires to marry; or the FASTER Dealer shall offer the Securities to all Buyers recorded in FASTER at the close of the Normal Trading Session in order of priority from the highest bid price down to, but not including, bids at the price at which the FASTER Dealer desires to marry. Any Securities which remain available after Regulation 6.11 has been complied with, may then be married. If there are only priority Buyers or Sellers at the close of a Normal Trading Session: the FASTER Dealer shall contact the priority Buyers by offering the selling order to all priority Buyers or bidding the buying order to the priority Sellers and indicating its intention to marry and shall provide each with the opportunity to participate in the transaction; if no sale has occurred in the Securities the subject of the Marriage on any Market Day, any resulting Marriage shall take place at a Marriage price which is not below the priority bid price and not above the priority offer price. Released: May of 91

34 (d) If after the close of a Normal Trading Session, a FASTER Dealer is unable to contact the priority Sellers or priority Buyers after making reasonable efforts to do so, then the FASTER Dealer may effect a Marriage with non-priority Buyers or Sellers Trading after close of a Normal Trading Session: If a FASTER Dealer wishes to effect a transaction with another FASTER Dealer after the close of a Normal Trading Session, and until the commencement of the next Normal Trading Session, the FASTER Dealer shall follow the following procedure: the FASTER Dealer shall indicate to the priority Buyers or priority Sellers at the close of the Normal Trading Session, its intention to deal and its price; if any of the priority Buyers or priority Sellers wish to trade at the FASTER Dealer s price, the FASTER Dealer shall deal only with the priority Buyers or priority Sellers in accordance with the order of priority recorded in FASTER at the close of the Normal Trading Session and may only effect a transaction with any other FASTER Dealer after the priority Buyers or priority Sellers have been first fully satisfied; if a Buyer or Seller with priority at the close of a Normal Trading Session undertakes a Trade with another NZX Firm, then before the commencement of the next Normal Trading Session, that NZX Firm shall withdraw from the FASTER Trading System the order which had priority, to the extent of the deal undertaken Reporting Transactions: This Regulation 6.13 shall apply only to Quoted Securities. A FASTER Dealer shall immediately report all sales and purchases of Quoted Securities effected by NZX Firm, including Marriages and Special Marriages, to NZX. Any transactions involving Quoted Securities that are executed in accordance with Regulations 6.11 and 6.12 must be reported as special Trades using the negotiated deal facility in FASTER. For Special Marriages, where a FASTER Dealer successfully tenders to purchase a portfolio of Quoted Securities, the FASTER Dealer shall: Released: May of 91

35 immediately advise the Market Information Services section of NZX by facsimile and the market by the earlier of: (aa) (bb) the commencement of the next Normal Trading Session following the purchase; or completion of any sale by that FASTER Dealer of the Securities the subject of the Special Marriage of a portfolio of Quoted Securities; report each Security in the transaction as a portfolio trade through the negotiated deal facility of FASTER. Where an NZX Firm or a FASTER Dealer of that Firm enters an order to buy or sell Quoted Securities on behalf of an Issuer and the transaction will increase or reduce the number of Quoted Securities on issue, they must identify the trade in FASTER as a capital transaction in accordance with the requirements of FASTER Stands in the Market: Subject to Regulation 6.14, any NZX Firm that receives an instruction to acquire more than 10% of the issued capital of an Issuer in any class of Equity Security including options or any other class of security convertible into an Equity Security, shall bid in the market to purchase from other NZX Firms at least 20% of the total number of each class of Security sought. For the avoidance of doubt, the requirements of this Regulation 6.14 apply to Marriages. This Regulation 6.14 shall not apply where the securities to be acquired pursuant to the instruction are to be acquired only: in single parcels of 5% or more of the relevant class of Equity Security from one or more substantial security holders (as defined in section 2 of the Securities Amendment Act 1988) of the Equity Security; or in individual transactions from one or more sellers of the relevant class of Equity Security for a consideration of $3,000,000 or more per transaction. If the Special Order Facility is required and NZX is satisfied with the way the process of acceptance within the 20% Released: May of 91

36 recognises retail clients, NZX Firm announcing the stand may also offer Securities on behalf of retail clients to the bid in the Special Order Facility. (d) NZX shall appoint a stand manager to ensure compliance with these Regulations. The procedure for bidding in the market shall be as follows: (iii) (iv) (v) (vi) (vii) Notice of the bid, including all relevant details, must be given to the Market Information Services section of NZX on a strictly confidential basis. The notice must be kept confidential to the bidder and NZX until the process for handling acceptances (if the Special Order Facility is used) is agreed with NZX after which the stand is placed in the market, and the market is informed. NZX will disseminate full details of the bid as a market announcement. For stands in the market announced after the opening of a Normal Trading Session where the Special Order Facility is not used to facilitate acceptance processing, trading in the Issuer's Securities and any related securities shall be placed in a Pre-Opening Session for 15 minutes from the time the market is informed. For stands in the market where the Special Order Facility is being used to facilitate acceptance processing, one hour s notice is required from the time the market is informed before the stand may commence in the market established for that security. If any post matching processing by NZX is required, 24 hours notice must be given to NZX of what is proposed under Regulation 6.14(d)(vii)(ee) to (gg). NZX Firm announcing the stand shall advise NZX of the following details: (aa) (bb) name of the Issuer; class of Security; Released: May of 91

37 (cc) (dd) (ee) (ff) (gg) number of Securities (or percentage of issued capital) to be purchased; price to be bid; period for which the stand will remain open; details of the acceptance process if the Special Order Facility is used; details of any price escalation or other conditions. (viii) (ix) (x) The agreement of NZX is required to the method of processing acceptances to be adopted and the form of advice to be given to the market for any use of the Special Order Facility. The name of the client making the bid need not be disclosed, but the client must be made fully aware of the obligation under Part II of the Securities Amendment Act 1988 to provide substantial security holder notices immediately when that obligation arises. Where: (aa) (bb) the bidder is an Issuer, it must be made fully aware of its obligations under Rules 4 (if applicable), and of the Listing Rules; and the stand relates to a code company (as defined in the Takeovers Code), the bidder must be made aware of its obligations under the Takeovers Code (if any) (xi) (xii) On receiving the notice, if the bid is to be processed in the Special Order Facility, NZX will establish a separate market for the Security in FASTER. If the Special Order Facility is to be used, then the opening of the Security used to facilitate the stand in the market will be at the discretion of NZX. Released: May of 91

38 (xiii) (xiv) (xv) (xvi) (xvii) (xviii) When ready, NZX will notify the market of the time the market will open and whether there will be a Pre- Opening Session for that Security. Only NZX Firm announcing the stand may place a bid order in the separate market established for the Security where the Special Order Facility is used. The bid must be maintained until the instruction is completed or until NZX Firm announcing the stand notifies NZX that the bid is withdrawn. A notice under Regulation 6.14(d)(xv) must include details on the level of acceptances. When notice of a bid has been given, bids at other prices may be made by any person, including the original bidder, in the usual trading code for the Security. Variations to the stand and other bids which are stands in the market must be notified to NZX immediately and must follow the procedures of this Regulation (e) (f) (g) (h) Only valid acceptances may be submitted to any bid in the Special Order Facility. NZX will cancel any invalid orders in post matching processing. The Special Order Facility may also be used for processing any significant order to buy or sell Securities on-market. Procedures for announcing and processing the special order shall be as described in this Regulation In addition to the requirements of Regulation 6.14 to, NZX Firms must comply with the Guidance Note for processing a stand in the market. NZX Firms should ensure that they are familiar with the Guidance Note for processing a stand in the market before participating in a stand in the market or an alternative use of the Special Order Facility. NZX Firms must ensure that they comply at all times with, and that their clients are aware of their obligations (if any) under, the Takeovers Code. Released: May of 91

39 6.15 Reporting requirements for escalation clauses or other benefits in market bids: (d) Full details of escalation clauses being offered in market bids must be given to NZX for release to the market. The advice must include those parties to whom the escalation is offered. Where escalation clauses or other benefits are offered selectively in on-market or off-market bids, that fact and the nature of the escalation or other benefit offered must be advised immediately to NZX. If a general escalation is paid to every Seller after sales at a lower price are reported, the buying FASTER Dealer shall advise NZX of the higher price paid to these Sellers, including any transaction for which he or she is also the selling FASTER Dealer. Where any transaction involves an escalation clause or any agreement to pay a fee or other consideration in addition to the reported sale price, the buying FASTER Dealer shall provide details of such escalation clause or agreement to NZX FASTER Dealers: The Board or its delegate may: authorise as a FASTER Dealer a candidate whom it considers has met the criteria in Regulation 6.17; and at its sole discretion, and without specifying any reason: (aa) (bb) decline to authorise a candidate as a FASTER Dealer; or revoke any FASTER Dealer s authorisation at any time. Every person who is authorised as a FASTER Dealer on behalf of an NZX Firm shall have his or her name entered in a "Dealers Register" maintained by NZX. Each NZX Firm shall advise NZX of any changes to its FASTER Dealers. Released: May of 91

40 NZX may, in accordance with Regulation 4.4, from time to time require current or prospective FASTER Dealers to undergo accreditation and/or training to ensure that each FASTER Dealer has an up-to-date knowledge of the working and use of FASTER Applications and criteria for authorising FASTER Dealers: Applications for authorising NZX Brokers, NZX Associate Brokers, or other employees or agents of an NZX Firm as FASTER Dealers shall be: made to NZX by NZX Firm; accompanied by an undertaking to NZX from NZX Firm in the following form: "We... (name of NZX Firm) hereby: 1. apply to NZX for... of... (city) to be approved as a FASTER Dealer. 2. confirm that is not less than 18 years of age, meets the requirements of Regulation 6.17, and has been employed by, or contracted to us since acknowledge and agree that we are responsible for all acts, omissions, quotations and transactions done, made or effected by. through FASTER, and 4. agree that we shall ensure that he/she will not execute any order on his/her own account or on account of his/her immediate family, family company or family trust without such order having first been approved by us in writing." NZX Firms nominating NZX Brokers, NZX Associate Brokers or other employees or agents as FASTER Dealers are responsible for ensuring that each candidate complies with the following conditions: Acceptability - In determining a candidate s acceptability as a FASTER Dealer, NZX Firm shall look for evidence of: (aa) the candidate s integrity and a record of high standard of business conduct, as Released: May of 91

41 shown in the investigations and observations of his or her NZX Firm, employer, previous employers, educational institutions attended and other relevant references; and (bb) the candidate s potential ability to perform in a satisfactory manner the duties of a FASTER Dealer as shown by a period of specific training for these duties in an NZX Firm's office or some equivalent office in the securities business. (iii) (iv) (v) Age - A candidate must be at least 18 years of age. Training - The minimum training requirements for a candidate without previous experience shall be one month. The training period may be reduced or waived at NZX s discretion if the candidate has had some previous experience in the securities business as a principal or employee, or in a closely allied field. During the training period, each trainee should undertake actual "on the job" training in NZX Firm, but must not deal in any Securities. Knowledge - A candidate should be able to demonstrate a thorough working knowledge of relevant sections of the Code, the Business Rules and these Regulations, and the operation of FASTER. Sharebrokers licence A candidate shall have been granted a licence under the Sharebrokers Act Trading Halts: NZX may temporarily halt trading in one or more Quoted Securities on FASTER (Trading Halt): if, in the opinion of NZX, circumstances exist or are about to occur that could result in other than the fair and orderly trading of the Quoted Securities of an Issuer; or in response to a request from an Issuer under the Listing Rules. Released: May of 91

42 (d) During a Trading Halt NZX Firms may not trade or undertake Marriages in the Quoted Securities subject to the Trading Halt, and no Marriages may be reported in such Securities. All decisions to halt or recommence trading shall be advised to all FASTER Dealers. NZX shall have discretion to extend a Normal Trading Session when trading is recommenced following a Trading Halt Client orders precedence: An NZX Firm or its FASTER Dealers shall not buy or sell Securities on behalf of a Prescribed Person while NZX Firm or its FASTER Dealers hold an unexecuted order on the same terms from a client to deal in one or more marketable parcels in such Securities. For the purpose of this Regulation 6.19, a limit order which cannot be executed owing to price differences is not an unexecuted order. No business shall be transacted by an NZX Firm or its FASTER Dealers: on account of an employee of that NZX Firm or for an account in which any such employee has any direct or indirect interest except with the prior consent in writing of a principal of NZX Firm for each transaction; on account of a Consultant to an NZX Firm who is not an employee, or on account of that person s immediate family, family companies or family trusts or for an account in which they have any direct or indirect interest, except with the prior consent in writing of a principal of NZX Firm given for that transaction or given for transactions or particular categories of transactions generally. (d) An NZX Firm which allocates a sale or purchase of Securities to fulfil all or part of an order from a Prescribed Person when it has an unfulfilled order on the same terms for those Securities from a client which is not a Prescribed Person shall be regarded as having engaged in conduct in breach of Rule 3.1 of Part A of the Business Rules. In this Regulation 6.19, a reference to a Prescribed Person placing an order for its own account means that the Securities to be bought or sold are, or will be, on the Released: May of 91

43 completion of part or all of the order, beneficially owned by the Prescribed Person. The Securities beneficially owned by a Prescribed Person include Securities which would appear as assets on the balance sheet or consolidated balance sheet of that Prescribed Person Application to NZX Retail Debt Market: The provisions of this Regulation 6 also apply to NZX Retail Debt Market, except for: (d) (e) Regulation 6.11 (Marriages after close of a Normal Trading Session); Regulation 6.12 (Trading after close of a Normal Trading Session); Regulation 6.13 (Reporting transactions); Regulation 6.14 (Stands in the market); and Regulation 6.15 (Reporting requirements for escalation clauses or other benefits in market bids). 7. DELIVERY AND SETTLEMENT 7.1 Definition: For the purposes of this Regulation 7: Value Date means the final time for acceptance and processing of settlement instructions on a Settlement Day by which a contract must settle in accordance with this Regulation Settlement period for Conventional Sales: For Trades of less than $100,000, the Buyer and Seller shall be deemed to have contracted to settle, and all Participant s contracts shall be deemed to settle, on a Value Date no later than the 3rd Settlement Day after the date on which the Trade takes place or Participant contract was made (as the case may be). For Trades of $100,000 and over, the Buyer and Seller: shall be deemed to have contracted to settle on a Value Date of the 3 rd Settlement Day after the date on which the Trade takes place; Released: May of 91

44 may agree to settle on a Value Date earlier than the 3 rd Settlement Day after the date on which the Trade takes place. (d) NZX may defer the Value Date (delayed delivery). If NZX defers the Value Date: (iii) NZX shall advise the market of the deferral; the Participant shall not be obliged to deliver until the delayed delivery status has been removed from that Security; and upon such removal, the normal delivery obligations in these Regulations shall apply, ignoring the period of delayed delivery status. (e) For Trades executed in NZX Retail Debt Market: the Buyer and Seller shall be deemed to have contracted to settle on a Value Date of the 5 th Market Day after the date on which the Trade takes place; Participants may contract with each other to settle Trades in FASTER on a Value Date not more than 30 days after the Trade date. 7.3 Settlement period for Short Sales: For Short Sales, the Buyer and Seller shall be deemed to have contracted to settle, and all Participant s contracts shall be deemed to settle, on a Value Date no later than the 3rd Settlement Day after the date on which the Short Sale occurs. 7.4 Delivery obligations: All Trades between NZX Firms in FASTER in Quoted Securities shall be held in a settlement pool until the Seller is able to lodge a COD through FASTER. The COD must be lodged before the Value Date. Trades not delivered by the Value Date shall be subject to administrative charge and/or NZX action under this Regulation 7. All other contracts between Participants shall be held in FASTER until the MPT is effected through FASTER by the Value Date. Contracts that are not completed by the Value Released: May of 91

45 Date shall be subject to an administrative charge and/or NZX action under this Regulation 7. Except as provided for in Regulation 7.7, settlement and registration of Trades and contracts including the provision of funds shall be made through FASTER in accordance with the requirements of that system. 7.5 Settlement accounts: Participants are required to maintain a Payments System account for the purpose of facilitating payments and receipts associated with settlement obligations. 7.6 Settlement payments: (d) (e) (f) Trades and contracts must be settled using same day funds in accordance with procedures set from time to time by NZX. Deliveries against payment by Participants will be rejected if the counterparty making payment does not have sufficient funds in NZX s settlement account or sufficient Securities in its FASTER Transfer Account at the time the COD or MPT is lodged. Participants may withdraw cleared funds at any time from NZX s settlement account. Following final Settlement Cut-Off Time each Settlement Day, Participants shall be repaid surplus cleared funds from NZX s settlement account directly into their Payments System accounts. Participants must have sufficient same day cleared funds deposited into NZX s settlement account within the Payments System to meet all obligations up until final Settlement Cut- Off Time. Persistent failure to provide sufficient funds during a Market Day will attract higher administrative charges. 7.7 Delivery and settlement outside of FASTER: Certain Quoted Securities may be designated from time to time by the Board as not available for delivery and settlement between Participants through FASTER. Delivery and settlement between Participants for Securities designated under Regulation 7.7 shall be by physical Released: May of 91

46 delivery of documents versus payment or as otherwise required by NZX. (d) Delivery obligations of Participants for Securities designated under Regulation 7.7 shall apply to Trades settled outside FASTER. On written advice from the Buyer that the Seller has failed to deliver by the Value Date, NZX may proceed to buy-in the Securities in accordance with the buy-in procedures in Regulation NZX buy-in: NZX Buy-in: (iii) The Chairman or Deputy Chairman of NZX may decide that if a Participant, having sold Securities, fails to deliver them to the Buyer by the Value Date, and the failure to deliver is not because the Buyer has insufficient funds to pay for the delivery, NZX will buy-in against the selling Participant without giving any notice. If an NZX Firm, having bought Quoted Securities, fails to have funds available to settle the transaction by the Value Date, the Chairman or Deputy Chairman shall have complete discretion to declare NZX Firm a Defaulter under the Business Rules in addition to the normal charges imposed for late settlement. By 9.00 a.m. on any Market Day, NZX may make available for collection or access by each NZX Firm a report listing all contracts effected by a Participant for which NZX will commence buy-in action. Buyingin against a Participant may proceed according to this report at a.m. on the same Market Day. Procedure: At am on the day of buying-in, NZX shall enter into FASTER a list of Quoted Securities to be boughtin, naming the Securities, the number to be bought, the Seller which is at risk and the price which it is proposed to pay. Released: May of 91

47 (iii) (iv) (v) (vi) Where the number of Quoted Securities to be bought-in exceeds a minimum holding, the Seller may deliver a minimum holding (or a multiple of a minimum holding) to reduce the number of Securities to be bought-in. The starting price bid shall be up to two percent above the current last transacted price or the current bid price, whichever is the highest. The buying-in shall commence at a.m. on any Market Day and Sellers may offer for delivery before 9.00 a.m. the following Market Day any Quoted Securities shown in the list, the first offer at the price bid to be matched by FASTER. Offers may be in whole or in part of any particular Security, provided that where part only is being offered, such offer shall be in marketable parcels. If the Quoted Securities are not obtained, NZX shall have absolute discretion to raise the price bid, in increments at the discretion of the Chairman, from time to time throughout the Market Day or on the following and successive Market Days until the Quoted Securities are bought or delivered to NZX. NZX shall have power to suspend the increase in bids if it is considered advisable. The Seller, unless it is the original Buyer, shall deliver the Securities to the original Buyer no later than 1 hour before final Settlement Cut-Off Time on the following Market Day. 7.9 Cash settlement in lieu of delivery: If: NZX is not able to buy in all or any of the Quoted Securities it requires under Regulation 7.8 after 3 Market Days; and the original Seller remains unable to deliver in terms of the confirmed trade, then to the extent that delivery cannot be made, the Chairman may fix a cash price as the basis for settling the transaction. Released: May of 91

48 Where a cash settlement is provided, the trade shall be deemed to have been cancelled and such cancellation shall apply to all Participants in the transaction General: Buying-in suspended: The Board may suspend, indefinitely or for such time as it thinks fit, the buying-in of any Quoted Securities when circumstances appear to make such suspension desirable. Late settlement fees: For contracts which are not settled as required by Regulation 7.2 or Regulation 7.3: a transaction fee as determined by NZX from time to time shall be charged to, and paid by, the Participant failing to complete settlement; and one half of any transaction fee received under Regulation 7.10 shall be credited to the account of the Participant disadvantaged by the failure to settle on the contracted Value Date. (d) NZX may require reports: NZX may require Participants to provide reports and confirmations that the delivery requirements of this Regulation 7 have been complied with for all sale contracts. Frequent breaches: If a Participant frequently breaches the delivery requirements of Regulation 7, the matter may be subject to further action by NZX Delivery and settlement obligations of FASTER Participants: A Participant shall be responsible for: the authorisation and validity of all transfers executed by it through FASTER, including: (A) (B) for NZX Firms, OIT, CIT, COD, PPT, MPT, COT and OOT; and for other Participants, OIT, PPT, MPT, COT and OOT; ensuring that all documents required in support of a transfer executed by it are: Released: May of 91

49 (aa) (bb) valid; and retained by the Participant or delivered to the relevant share registry by 12 noon on the Market Day following the transfer; and (iii) having sufficient funds available in its FASTER settlement account to meet its obligations. A Participant that is a Seller of Quoted Securities in an overseas company having a New Zealand register shall deliver Quoted Securities through FASTER on that register. Participants shall be responsible for ensuring that Quoted Securities transferred by them are free from all liability due or payable at the time of sale Inability of clients to meet obligations: If an NZX Firm's client dies or becomes otherwise incapable of receiving and paying for, or delivering or transferring, Quoted Securities which the client has ordered to be bought or sold and, after reasonable inquiry, NZX Firm has no knowledge of anyone legally authorised to complete such purchases or sales on the client's behalf, NZX Firm may, through the Managing Director or with his or her authority, resell or repurchase as the case may be, and the client (or the client s estate) shall be liable for any deficiency and be entitled to any surplus which may result. If an NZX Firm's client fails or refuses to complete a contract or a number of contracts on demand (which demand need not be in writing), NZX Firm may resell or repurchase, as the case may be, the Quoted Securities the subject of the contract or contracts at the client's risk and expense, which expenses shall include brokerage and any other relevant charges. If as a result of such resale or repurchase: there is a deficiency in the settlement price, that deficiency shall constitute a debt owing by the client to NZX Firm; and there is a surplus, the surplus belongs to the client and NZX Firm shall account to the client accordingly; Released: May of 91

50 7.13 FASTER Transfer Clerks: NZX REGULATIONS subject in each case, to any right of set off which may exist. The Board or its delegate may: authorise as a FASTER Transfer Clerk a candidate whom it considers has met the criteria specified in Regulation 7.14; and at its sole discretion, and without specifying any reason: (aa) decline to authorise a candidate as a FASTER Trading Clerk; or (bb) revoke any FASTER Trading Clerk s authorisation at any time. (d) (e) Every person who is authorised as a FASTER Transfer Clerk on behalf of an NZX Firm shall have his or her name entered in a Transfer Clerks Register maintained by NZX. Each NZX Firm shall advise NZX of any changes to its FASTER Transfer Clerks. NZX may, in accordance with Regulation 4.4, from time to time require current or prospective FASTER Transfer Clerks to undergo accreditation and/or training, and/or to otherwise demonstrate competence and knowledge of FASTER operations and functions. Only FASTER Transfer Clerks may enter transfer information not already held by the computer system of any Participant which will initiate a transaction in FASTER. FASTER Transfer Clerks are responsible to their Participant: for ensuring the correct entry of transfer information and compliance with the Regulations for delivery, settlement and transfer; and in particular, for the proper receipt and provision of any documentation in support of transfers. (f) Participants shall be responsible for all acts and omissions, and transactions done, made or effected by their FASTER Transfer Clerks using FASTER. Released: May of 91

51 (g) Participants nominating employees or contractors as FASTER Transfer Clerks must ensure that each nominee is suitably trained and competent for the position Applications for authorising FASTER Transfer Clerks: Applications for authorisation of employees or contractors as FASTER Transfer Clerks shall be: made to NZX by the Participant who employs or contracts such person; accompanied by an undertaking to NZX from the Participant in the following form: "We... (name of Participant) hereby: 1. apply to NZX for our employee/nzx Broker/NZX Associate Broker of... (city) to be appointed as a FASTER Transfer Clerk. 2. acknowledge and agree that we are responsible for all acts and omissions, and transactions done, made or effected by... in FASTER; 3. agree that we shall ensure that he/she will not execute any transfer on or to his/her own account or on or to an account of his/her immediate family, family company or family trust without such transfer having first been approved by us in writing."; and 4. confirm that. is suitably trained and qualified for the position of FASTER Transfer Clerk. Released: May of 91

52 Participants nominating employees or contractors as FASTER Transfer Clerks are responsible for ensuring that each nominee is suitably trained and competent for the position Application to NZX Retail Debt Market: The provisions of this Regulation 7 also apply to NZX Retail Debt Market, except for: Regulation 7.8 (NZX buy-in); Regulation 7.9 (Cash settlement in lieu of delivery); and Regulation 7.10 (General). 8. PROTECTION OF SHAREHOLDER BENEFITS 8.1 For the purposes of this Regulation 8: Accrual means an adjustment to the settlement terms of a Trade or contract arising from a benefit, call or instalment payment, entitlement or right of conversion which arises while the Trade or contract remains unsettled; and Adjustment Date means the date an outstanding unsettled trade is adjusted by FASTER. Good Delivery 8.2 Participants are responsible for the good delivery of all Trades and contracts. Good delivery shall constitute a valid transfer of Securities and receipt of cleared Funds for all Trades and contracts in Quoted Securities. 8.3 Good delivery for a trade adjusted by FASTER shall constitute a valid transfer of Securities, including any Accruals and the receipt of cleared Funds, cash adjusted for any cash Accrual. Protection 8.4 The Seller shall be required to protect the rights of the purchaser by taking up the Accrued benefit, entitlement or right unless the Buyer advises otherwise in writing. 8.5 If the purchaser does not wish to take up all or part of an Accrued benefit, entitlement or right, the Buyer must advise the Seller prior to the Record Date. Released: May of 91

53 8.6 Any outstanding unsettled Trades or contracts in FASTER as at the Record Date or Adjustment Date for a benefit, call or instalment payment, entitlement, or right of conversion on a Quoted Security will be adjusted automatically in accordance with the rules of FASTER. 8.7 Where there are benefits, entitlements, or rights of conversion in relation to outstanding unsettled Trades or contracts in FASTER, the Seller shall not be entitled to require settlement from the Buyer until a COD has been made for the original contract and the benefit, entitlement, right or new deliverable Security can be delivered (as the case may be). Takeovers 8.8 In the case of a takeover, where the Quoted Securities subject to the takeover cannot be delivered in time for registration and acceptance of the takeover offer by the Buyer, then the Seller shall seek registration and accept the takeover offer on the Buyer s behalf unless instructed otherwise by the Buyer. 8.9 If an alternative consideration is being offered by the offeror, or there are competing offers in the market and the relevant Quoted Securities cannot be delivered in time for registration or acceptance by the purchaser of the purchaser s preferred consideration or offer (as the case may be), then the Seller shall be obliged to seek instructions from the Buyer on which alternative to accept on the purchaser s behalf If the Buyer is not reasonably available or fails to give instructions as requested by the Seller, then the Seller shall be free to exercise the choice on the purchaser s behalf. Non-FASTER transactions 8.11 For Accruals relating to transactions for Quoted Securities that are not settled through FASTER, the Seller shall enclose payment for any cash adjustment or documentation as appropriate If such payments or other documents are not included with the delivery, the Buyer may reject delivery but the Seller shall remain liable to the purchaser for the Accrual. Claims 8.13 A claim for any Accrued benefit, entitlement or right relating to a transaction in a Quoted Security shall be accompanied by a fee as set by the Board from time to time which shall be paid by the claiming Participant, except if: Released: May of 91

54 an NZX processing error has occurred; or the documents have been rejected If a claim is caused by the Buyer failing to register Securities prior to the Record Date, the Seller shall use its best endeavours to obtain the dividend or benefit claimed from its client, provided that the Seller shall not be liable to the Buyer for any loss suffered. 9. TRANSFERRING SECURITIES 9.1 Advice on incomplete transfers: NZX Firms must advise clients if a transaction with them has not been completed within 10 Business Days. 9.2 Transfer of Securities to Transfer Account: Subject to Regulation 9.8, upon being authorised by a client to sell Securities, an NZX Firm may transfer those Securities into NZX Firm s Transfer Account to effect their sale. 9.3 Securities to be held on trust: Securities held on behalf of clients other than for effecting a transfer, or pending completion of a transaction, must be held on trust in a separate nominee account. If an NZX Firm holds Securities on its own account, the Securities must be held in a separate nominee account to that used for clients. 9.4 Prior consent to transfer: Before completing a Client Outward Transfer on behalf of a client into the name of a nominee, the Buyer must obtain the written consent of the nominee. 9.5 Use FASTER for transfer and settlement only: The electronic information available through FASTER is to be used by NZX Firms only to effect the transfer and settlement of Securities and not for gathering information generally or for any other purposes not related to the transfer of Securities. 9.6 Warranty and indemnity by NZX Firms: Every NZX Firm who completes a CIT is deemed: to warrant to the Issuer that the transfer is valid and has been authorised by the registered holder of the Securities being transferred; and to indemnify the Issuer for any loss suffered by the Issuer due to a breach by NZX Firm of that warranty, without prejudice to any right of NZX Firm under Rule of the Listing Rules. Released: May of 91

55 9.7 Cause of action: NZX Firm s warranty and indemnity in Regulation 9.6: constitute promises which confer, and are intended to confer, a benefit on Issuers under section 4 of the Contracts (Privity) Act 1982, and therefore give rise to a cause of action by an Issuer against NZX Firm, provided that this Regulation 9.7 shall not affect or prejudice any other right NZX Firm may have. 9.8 Transfers of client Securities: No NZX Firm may enter a transfer of client Securities into its Transfer Account unless the sale of those Securities has been confirmed and the Seller has properly verified the identity and authority of the client to transfer the Securities. If documents of any kind are required to support a transfer of Securities, Sellers must deliver the documents to the registry by noon on the Market Day following the transfer. Following any reported failure to comply with Regulation 9.8 or 9.8, NZX may, as well as proceeding with immediate disciplinary action: if Regulation 9.8 is breached, immediately buy-in the Securities against the Seller, in accordance with the buy-in procedures in Regulations 7.8 and 7.9, (provided that Regulation 7.8 shall not apply) for credit to the holding of the original owner of the Securities; and if Regulation 9.8 is breached, and it is established that non-delivery was due to loss or failure in transit and not due to any failure by the Seller to arrange for normal proper delivery, allow the Seller five Business Days to complete delivery of proper documents and then immediately proceed to buy-in the Securities against the Seller, in accordance with the buy-ins procedures in Regulations 7.8 and 7.9, (provided that Regulation 7.8 shall not apply) for credit to the holding of the original owner of the Securities. If non delivery was due to the Seller s failure to arrange for normal proper delivery, NZX may buy-in the Securities immediately without waiting five Business Days. Released: May of 91

56 9.9 Transfers outside FASTER: Transfers outside FASTER shall be by means of a proper instrument of transfer in accordance with the Securities Transfer Act Corrections to form: Any correction to Part 1 of a transfer or renunciation form prior to delivery by the Seller must be endorsed "Correction Guaranteed" by a stamp showing the broker code number of NZX Firm. Failure to do this will render the transfer "Not Good Delivery". Numeric and value amounts can only be altered downwards, and accordingly, the original detail and its correction must both remain visible. The Buyer must also, in the same manner as the Seller, certify any correction or alteration of Part 2 of the form prior to lodgement with the Issuer Minor corrections: Minor corrections to the transferor s name may be made, provided they are correction guaranteed under Regulation Such corrections should only be to bring the detail into line with that on the supporting scrip. In terms of the Securities Transfer Act 1991, all transfers must include the full name of the transferor/s No additions unless correction guaranteed: No information may be added to a transfer unless that is also correction guaranteed Correction guarantee stamps: Correction guaranteed stamps from non NZX Firm originators who are authorised to use securities transfer forms in terms of the Securities Transfer Act 1991 are acceptable. Such originators presently comprise: (d) (e) solicitors; chartered accountants; trustee corporations; Banks; and authorised public security dealers Class and amount on transfer: Class must be shown on the transfer. In fully paid shares, the amount to which the share is paid up need not be shown but for partly paid shares it must be shown. Released: May of 91

57 9.15 Quantity to be shown on transfer: A transfer must contain the quantity of shares in figures. If both words and figures are used, then they must correspond Dates and stamping: The date of signing by the transferor must be shown on all transfers, together with the stamp and NZX Firm code of the Seller, and the date on which they were affixed Non-corresponding shareholder numbers or addresses: Transfers supported by scrip with the same name and address but with different shareholder numbers or with the same name and shareholder numbers but different addresses will be acceptable Transfers with matching name only: Transfers from scrip with only the name matching will be acceptable as good delivery only if such transfers are accompanied by confirmation in writing from the Seller that the transferor in each case is the same person Abbreviations: Abbreviations such as "Ltd" "N.Z." or "Corpn" are acceptable on transfers Maximum number of transfer forms: The maximum number of separate transfer forms acceptable on a delivery shall be 15. Any greater number shall be acceptable only by agreement between the Buyer and Seller NZX Firm stamps: Every NZX Firm who affixes a stamp to identify the firm on any formal documents shall use a stamp in a form and style approved by NZX, bearing the name of NZX Firm and the words authorised NZX Firm, and NZX Firm code of the firm (including as the last character an identifier as necessary to identify an office of NZX Firm). 10. CAPITAL ADEQUACY 10.1 Application: For the purposes of Rule 18 of Part A of the Business Rules, these capital adequacy regulations shall apply to: NZX Firms; and all other Prescribed Persons which conduct business, including underwriting, normally regarded as Stockbroking Business, in a way such that the control of the activity is not clearly independent of NZX Firm. Released: May of 91

58 The Inspector shall decide, if necessary, whether such activities are to be ruled as independent. Where the stockbroking activities of NZX Firm include the activities of other Prescribed Persons, the calculations and returns required by these Regulations shall be prepared on a consolidated basis Generally accepted accounting principles: For the purposes of Rule 18 of Part A of the Business Rules, the capital adequacy of an NZX Firm shall be calculated in accordance with generally accepted accounting principles, subject to this Regulation 10. Those principles and provisions shall be applied so as to ensure a true and fair assessment of the extent of an NZX Firm's compliance with these requirements Liquid Capital: Liquid Capital means the sum of Current Assets, reduced in accordance with the risk based provisions of Regulation 10.8, less Gross External Liabilities Current Assets: Current Assets means: all current assets, as defined by generally accepted accounting principles; may include: facilities or agreements which give NZX Firm an unconditional right, or a right subject only to the condition of not more than three Business Days notice, to require the grantor of the facility to provide additional funds to NZX Firm and which is: (aa) (bb) given by a person approved by NZX (which approval may be withdrawn at any time); and evidenced by a deed or agreement in a form approved by NZX. Such a facility must have the following features: it must be unconditional or conditional only as to a drawdown notice; if the facility provides for a loan, then the loan should be in the same form as subordinated loans acceptable under Regulation 10.7; and Released: May of 91

59 the document evidencing the facility must be expressed to be for the benefit of, and enforceable by, creditors and NZX and provide for amendment only with the consent of NZX; an irrevocable guarantee in a form approved by NZX, given by a Bank or other person approved by NZX, which creates an unconditional obligation on the guarantor to pay the liabilities of an NZX Firm promptly upon demand being made by NZX. The amount guaranteed will be restricted to the amount stated on the face of the guarantee and the guarantee shall not be cancelled or amended without the approval of NZX. NZX may at any time withdraw its approval of a guarantor, in which case the guarantee will no longer meet the requirements of this Regulation 10.4; and excludes: Securities or other assets which have no ready market; all debts over 10 Business Days old except where: (aa) (bb) the Inspector is satisfied that this leads to a material underestimation of Current Assets; or NZX Firm holds, in a nominee account, Securities against the amount outstanding with a current market value of at least 140% of any amount outstanding. A condition of this exemption is that NZX Firm provides a separate balance sheet item for the activities of margin lending against Securities; (iii) all loans and advances to, or amounts owing by, any partners, employees or persons associated with NZX Firm, or their immediate families, or any family trusts or companies of those persons, any parent or subsidiary companies, related parties or any parties having any other financial or trading interest in NZX Firm, except: Released: May of 91

60 (aa) any such loans, advances or amounts owing which are unconditionally guaranteed (subject only to the condition that the debtor has failed to pay the amount owing): by a person approved by NZX (which approval may be withdrawn at any time); and which is evidenced by a deed in a form approved by NZX; or (bb) where the amount in question arises through a stockbroking transaction undertaken by NZX Firm on behalf of the other party, and which is subject to normal trading settlement terms; (iv) (v) (vi) all fixed assets including property; goodwill; and intangible assets including intellectual property Gross External Liabilities: Gross External Liabilities means: total gross liabilities; includes all current, long-term and contingent liabilities, and net underwriting positions and firm Security positions taken in placements; and excludes only: shareholders funds comprising paid up capital, retained earnings of NZX Firm (after tax, or after provision for tax on year to date earnings) and realised reserves or any other reserves approved by the Inspector. Shareholders funds may include redeemable preference shares when these are issued in accordance with a deed, and are on terms approved by NZX; subordinated loans made to an NZX Firm that is a company where evidenced by deed and with the subordination confirmed by a trust in a form Released: May of 91

61 approved by NZX in accordance with Regulation 10.7; (iii) where NZX Firm is a partnership, partners' capital (in the form of current or capital account balances, loans from partners, retained earnings of the partnership, realised reserves or any other form of liability to any or all of the partners); (d) debit and credit balances for which a legal right of set-off exists may be treated as a net balance Disclosure of contingent liabilities: Any and all other undertakings, guarantees, promises and obligations of NZX Firm or claims against it, including any current, threatened or pending legal proceedings, which are not recorded as balance sheet items but have the effect of either actually or potentially increasing the liabilities or decreasing the assets of NZX Firm shall be disclosed to the Inspector. The Inspector will determine the appropriate increase to be applied to the level of Gross External Liabilities, or whether in the particular circumstances, an adjustment to reduce the level of Current Assets may be more appropriate Subordinated loans: To qualify for exclusion from the definition of Gross External Liabilities in Regulation 10.5, subordinated loans shall be evidenced by an agreement in writing, between the parties in a form of subordinated loan agreement approved by NZX. The subordinated loan agreement shall include the following: (d) (e) the agreement shall not be amended except in writing signed by the parties and approved by NZX; the terms and conditions governing each loan; NZX must be satisfied that the borrower has made adequate arrangements to cover Liquid Capital requirements upon the maturity date of any loan for a fixed term, and shall be advised of the full particulars of each loan prior to the loan being accepted; repayment of a loan in whole or in part shall not take place without the prior approval of NZX. NZX may withhold its consent if it is not satisfied that NZX Firm is capable of continuing to comply with the Business Rules the Code of Practice, and these Regulations following repayment of the loan; an acknowledgment by the lender that: Released: May of 91

62 any right of the lender to payment in the case of bankruptcy of or any composition or compromise with creditors by or appointment of a trustee in bankruptcy or in the case of liquidation, liquidator in respect of NZX Firm, or the partners, shareholders or directors or any of them is extinguished to such extent as will ensure payment, or provision for payment, in full of all claims of all other present and future creditors of NZX Firm in priority to the claim of the lender; any right to receive interest and principal repayments are subordinated, at all times during the term of the loan, to all other creditors; and (iii) the obligation to repay the loan, and to pay interest, is suspended if Liquid Capital of NZX Firm falls below the Prescribed Level Risk based reductions to Current Assets: For the purposes of calculating an NZX Firm s Liquid Capital, the following reductions to Current Assets (including those for which NZX Firm is a principal) shall be applied: Debtors: NZX Firms are required to have policies on managing, and providing for, bad debts, counterparty risks and price movement risks on client trades. The Inspector will review these policies for each NZX Firm and establish a suitable level of reduction to the client receivables for that NZX Firm. Equity Securities: For Equity Securities held or receivable by NZX Firm, the following reductions shall apply: for New Zealand Listed Equity Securities and foreign leading equities, 10%. For the purposes of this Regulation 10.8, foreign leading equities means overseas listed equities in the blue chip index of a Member Exchange of the International Federation of Stock Exchanges; for rights, the lesser of: Released: May of 91

63 (aa) (bb) 100%, or 10% of the combined value of rights and application monies; and (iii) for other Equity Securities (including partly paid shares), 100% (or such lesser amount as determined by the Inspector). Where short and long positions are held, positions may not be offset. Reductions using the same percentage amounts shall apply to the value of short positions. Debt Securities: For Current Assets comprising Debt Securities, the following reductions shall apply: Security type Term Less than 1 year 1 3 years 3 5 years 5+ years Government securities Corporate (i.e. local authorities, SOE or corporate bonds) 0.5% 1.0% 3.0% 5.0% 1.0% 3.5% 5.0% 7.0% Other 8.0% 8.0% 10.0% 15.0% (d) Futures positions: Unhedged positions: Reductions to Current Assets for unhedged futures positions (either short or long) are to be taken at the rate appropriate to the underlying security and based on the gross amount of the underlying security. For NZX10 Share Price Index Futures Contract, a 10% reduction will apply. Hedged positions: See Regulation (e) Options positions: Released: May of 91

64 The book value of purchased calls as principal is subject to a reduction of 100%. Any unrealised profit may be taken into account as a Current Asset if a reduction to Current Assets has been made by applying the scale in Regulation 10.8 to the value of the underlying security at market prices. For written calls, the premium received may be recorded as a Current Asset. The underlying security is to be valued at the lower of the option exercise price or the market price with the appropriate reduction to Current Assets being calculated by applying the scale in Regulation 10.8 to that value. (f) Underwriting positions: If required by the Inspector, an NZX Firm acting as underwriter or sub-underwriter to a transaction shall supply the following information: (aa) (bb) (cc) (dd) (ee) (ff) the gross amount underwritten; the party to whom the potential liability is owed; the sub-underwriting parties (if any) who have reduced the size of the position; evidence of any sub-underwriting (e.g. confirmation letters); the net exposure after any sub-underwriting; and any information available regarding the financial position of the sub-underwriter/s. (iii) Current Assets are to be reduced by a percentage of the value of net underwriting positions or pre-listing offers or commitments to take Equity Securities on a firm basis, using the reductions in Regulation Where Debt Securities are underwritten by NZX Firm, the reductions to Current Assets shall be calculated Released: May of 91

65 by applying the scale in Regulation 10.8 to the principal positions of those Securities. (g) Other non-standard transactions: All other transactions are to be disclosed to the Inspector, who will determine the appropriate reduction to be applied to the level of Current Assets. Such transactions may include, without limitation, partly paid shares where the liability is with NZX Firm to collect the calls, performance guarantees to third parties, buy-back transactions and transactions not recorded in the accounts Hedged Positions: Those NZX Firms that hedge (in other words, take out futures or options contracts that fully cover the price movement risk) their own principal positions may, with the prior agreement of the Inspector, net these off. In general, the Inspector will give his or her agreement under Regulation 10.9 if an NZX Firm s futures positions in NZX 10 Share Price Index have the top five Securities by market capitalisation matching the weightings of the relevant index. An additional reduction of Current Assets may be required by the Inspector to adjust for liquidity or mis-matched maturity risks for Debt Securities Prescribed Level of Liquid Capital: The Prescribed Level of Liquid Capital for an NZX Firm means: for an NZX Firm which has been an NZX Firm for a period of 12 months or more, the sum of: $100,000; and 5% of Gross External Liabilities; and for an NZX Firm which has been an NZX Firm for less than 12 months, the sum of: $250,000; and 5% of Gross External Liabilities Obligation to calculate Liquid Capital levels: Released: May of 91

66 A full calculation of the prescribed and actual Liquid Capital levels for an NZX Firm must be done at the end of each month and provided as part of the required monthly return. A calculation to check that actual Liquid Capital levels exceed the Prescribed Levels shall be done: daily for each NZX Firm for principal positions and trades in Debt Securities over $5 million where NZX Firm holds a principal position in the trade; and weekly for client trades. NZX Firm shall maintain a log of the calculations and supply that log with the return at the end of each month. An NZX Firm with sufficient Liquid Capital and dealing procedures to ensure that the Prescribed Level will be met at all times may, with the prior written approval of the Inspector, calculate its prescribed and actual Liquid Capital levels at practical and reasonable intervals (but in no case less often than monthly). Such approval may be withdrawn by the Inspector at any time Approval for temporary non-compliance: Subject to the prior approval (subsequently confirmed in writing) of the Chair, Deputy Chair or Managing Director, an NZX Firm may be temporarily excused from complying with Regulation for a particular transaction. NZX Firms shall not assume that approval will be given for any particular transaction Current market prices to be used: Prior to risk based adjustments being made, Securities or positions held shall be valued at current market prices for the purposes of calculating of Liquid Capital Establishing internal controls for Liquid Capital: NZX Firms must establish in-house policies and rules which control the level of business transacted to ensure that the Liquid Capital requirements are met at all times. NZX Firms shall, whenever requested by the Inspector, demonstrate to the satisfaction of the Inspector that these policies and rules are in place and working effectively Requirement to notify: All NZX Firms shall notify the Inspector immediately if: there is any material change, loss or exposure, including in respect of contingent liabilities, which may affect their Liquid Capital position, whether or not they continue to maintain Liquid Capital in excess of the Prescribed Level; or Released: May of 91

67 NZX Firm s Liquid Capital level at any time falls below a threshold of 20% in excess of the Prescribed Level Checklist of internal controls: As part of the internal controls required by Regulation 13, all NZX Firms shall, each month: complete a checklist of in-house monitoring, reconciliation and capital adequacy calculation, in the form approved by NZX; and submit that completed checklist, signed by the Managing Principal or other person who is a current principal of NZX Firm, with the form approved by NZX for calculating Liquid Capital (FF2). (See Regulation 13.1). 11. NZX FIRMS' ACCOUNTING RECORDS 11.1 Accounting Records and Controls: Every NZX Firm shall maintain accounting records in respect of its business activities and in respect of assets, liabilities and transactions in its control or for which it is accountable. These records shall be prepared in accordance with generally accepted accounting principles so as to give a true and fair view of the ability of NZX Firm to meet its financial obligations. It shall be the responsibility of NZX Firm s Management to ensure that this Regulation 11 is complied with at all times. The records shall be sufficient to capture and record (in a memorandum account where appropriate), on a timely basis and in an orderly fashion, every transaction and commitment which an NZX Firm enters into, and in each case, with sufficient information to explain its nature and the asset(s) and/or liability(ies), actual and contingent, which arise or may arise from it. The records shall be maintained in a manner such that they disclose, or are capable of disclosing, in a prompt and appropriate fashion, the financial and business information which will enable Management to: identify, quantify, control and manage NZX Firm's risk exposures; make timely and informed decisions; Released: May of 91

68 (iii) (iv) (v) monitor the performance of all aspects of NZX Firm's business; monitor the quality of NZX Firm's assets; and safeguard NZX Firm s assets, including assets belonging to other parties and other persons for which NZX Firm is responsible. (d) (e) The accounting and other records must contain details of exposure limits authorised by Management which are appropriate to the type, nature and volume of business undertaken. Management must ensure that the information contained in the records is capable of being summarised in a way that enables actual exposures to be readily and regularly measured against these limits. The records shall not be sufficient unless they: disclose with reasonable accuracy, at any time, the financial position of NZX Firm at that time; enable the financial reports required by NZX to be prepared at any given date, and to be drawn up within a reasonable time. (f) NZX Firm shall: maintain clear and up-to-date documentation of all accounting systems and internal controls, including a record of all changes made and the dates on which these were implemented; and provide such explanations of the systems and controls to the Inspector as may be requested. (g) NZX Firm shall notify the Inspector promptly of any changes to the systems and controls which might affect the Inspector's assessment of the adequacy of such systems and controls Content of accounting records: The accounting records shall, in particular, contain: entries from day to day of all sums of money received and expended and the matters in respect of which they are received and expended; Released: May of 91

69 (d) (e) (f) (g) (h) a record of all income and expenses explaining their nature; a record of all assets and liabilities, including any commitments or contingent liabilities; entries from day to day of all purchases and sales of investments on NZX Firm's own account and separately by NZX Firm acting as agent for another party; entries from day to day of the receipt and despatch of all investments or documents of title in the control of NZX Firm, whether owned by NZX Firm or by another party; an up-to-date record of all investments or documents of title in the possession or the control of NZX Firm, showing the physical location, the beneficial owner, the purpose for which they are held, and whether they are subject to any charge; entries from day to day of all receipts and payments of clients' money held in bank accounts or passed on to third parties; and an up-to-date record of: balances of individual client accounts; and balances with individual clients, stating the name of each client and the amounts held or received for that client General: NZX does not consider it possible to prepare an exhaustive and prescriptive list of accounting requirements applicable to all NZX Firms. The detailed requirements will vary according to, amongst other things: the manner in which the business is structured, organised and managed; its size; and the nature, volume and complexity of its transactions and commitments. The overriding principle, however, is that the records and systems must be adequate to fulfil the general requirements set out in Rule 16.1 of Part A of the Business Rules. Released: May of 91

70 12. AUDIT OF NZX FIRMS' BOOKS 12.1 Content of certificate and report: The certificate and report referred to in Rule 16.2 of Part A of the Business Rules shall deal with the following financial matters: (d) (e) (f) (g) (h) (j) (k) (l) balance date; have all books and records required for the purpose of this certificate been regularly and properly kept; have any Securities held for safe custody been pledged in any way; were all Securities held for safe custody (if any) examined; if a client is financed, does the market value of the Securities held cover the amount of the advance; were all Securities lodged by the clients for sale and Securities purchased for clients and paid for by them held unencumbered; did the market value of assets as shown by the books exceed NZX Firm's commitments at the date of the audit; were the assets taken into account readily realisable; does the statement of assets include private assets not usually included with business assets; are there any contingent liabilities, and if so, of what amount. (Note: Under this heading, a full report must be furnished of any oversold position). are there any other matters or circumstances which, in the auditor's opinion, affect the financial position of NZX Firm; has all the necessary information been available to enable this certificate to be given. 13. INSPECTION 13.1 NZX Firms Obligations: Each NZX Firm shall, in relation to its Stockbroking Business: Released: May of 91

71 keep accounting records as required by Regulation 11; (d) (e) (f) (g) (h) take out and forward to the Inspector, to be received by the Inspector not later than the 10th Business Day of the following month, a copy of a trial balance as at the last day of every month. Such trial balance shall provide details as to the name or nature of each balance; set out the trial balances filed under this Regulation in the forms (FF1 and FF2) from time to time required by NZX so as to provide immediate information as to the solvency of the business and NZX Firm's compliance with Rules 3 and 18 of the Business Rules, and Regulation 10. The forms shall include a statement, signed by the Managing Principal of NZX Firm, that NZX Firm complies with the Regulations, and that the accounting records are up to date as at the time of signing the statement; reconcile all balances outside of FASTER, whether debit or credit, and in all currencies with all NZX Firms and other parties, including overseas brokers making monthly reconciliations, on the last Business Day of each month; reconcile all balances with other overseas brokers at least every month. The reconciliations shall be completed and delivered no later than the sixth Business Day of the following month, and shall in each case list those overseas brokers, if any, from whom no statement has been received; prepare a profit and loss account and balance sheet within two months of the end of NZX Firm s financial year and notify the Inspector immediately that such profit and loss account and balance sheet has been completed; when managing client portfolios under absolute authority, as required by Regulation 4.2 have such client s authority in writing and produce it on request by the Inspector; establish and maintain proper and prudent procedures for confirming the identity of new clients and the authority for any orders in accordance with Regulation 4.1 In particular, these procedures shall cover the information required and checks to be made to verify that proper authority is provided with sell orders to execute the transfer of ownership on behalf of the client; Released: May of 91

72 when managing client portfolios with ability to transfer Securities or when registering a client's transactions in a name or names other than that of the client: as required by Regulation 4.2, supply each client, quarterly or at such other interval as is agreed with the client, with a detailed schedule of the portfolio, sales, purchases and market value of holdings (including those belonging to the client but dealt with in other names); and satisfy the Inspector that this has been prepared in sufficient detail; (j) (k) establish and maintain systems of internal control within NZX Firm. It is the responsibility of NZX Firm s Management to ensure that this Regulation is complied with at all times; ensure that, in determining the scope and nature of effective internal control, its Management considers (among other things): (iii) (iv) (v) (vi) the size of the business; the diversity of operations; the volume and size of transactions; the degree of risk associated with each area of operations; the amount of control by Management over day-today operations; and the degree of centralisation and the methods of data processing. In particular, the internal control shall be designed to ensure that: (vii) all transactions and commitments entered into are recorded and are within the scope of authority of the person entering into such transactions or commitments; (viii) there are procedures to safeguard assets and control liabilities; and Released: May of 91

73 (ix) there are measures, so far as is reasonably practicable, to minimise the risk of losses to the business from irregularities, fraud or error and identify such matters if they occur so that prompt remedial action may be taken by Management; (l) (m) (n) (o) ensure accounting records comprise the orderly collection and summary of the information in question, rather than being a mere accumulation of documents. All records shall be maintained in sufficient detail and with sufficient crossreferences to establish an adequate audit trail. The audit trail shall include all records, working papers and schedules supporting the production of annual financial statements and all financial reporting statements; ensure that all records are arranged, filed and indexed in such a manner as to permit ready access to any particular record. Where an NZX Firm maintains its records in any manner other than on paper in an easily legible form, then it shall also provide facilities for the prompt access to these records and for the prompt production of copies of these records on paper in such easily legible form; maintain procedures for the maintenance, security, privacy and preservation of the records so that they are reasonably safeguarded against loss, unauthorised access, alteration or destruction; and for NZX Firms that are partnerships or sole traders, provide a complete statement of assets and liabilities of each partner if required by the Inspector Inspector s Powers and Duties: The Inspector shall, in ensuring that NZX Firms are complying with their responsibilities under Rules 17.3 and 17.4 of Part A of the Business Rules: record the receipt of trial balances for the purposes of ensuring that, prima facie, accounting records are written up to date; inspect the separate accounting and internal control records of every NZX Firm at least once in each calendar year to determine if NZX Firms are carrying out their duties under these Regulations. In particular, the Inspector shall test the records to the extent he or she considers necessary to enable him or her to form a prima facie opinion as to the effectiveness of the system in operation and the accuracy of the accounting and internal control records; Released: May of 91

74 (d) (e) (f) (g) (h) on each visit, review the Security trading records, and where NZX Firm's solvency depends on the present value of Securities held on each visit, consider the current market value of such investments in relation to their book value; review the procedures relating to reconciliations, internal systems and Management of portfolios to become satisfied that the Regulations are in all respects being complied with; inspect and/or access, at any time, such information, network, system, equipment or process of any NZX Firm as the Inspector in his or her discretion considers necessary to ensure any NZX Firm, or its employees, observes and complies with, the Rules, the Regulations, the Code of Practice and with Good Stockbroking Practice; carry out sample verification (the extent to be at the Inspector s discretion), based on audit procedures, of clients' accounts; (if required by NZX), report on the financial capacity of an NZX Firm in relation to any underwriting contract entered into; in respect of NZX Firms that are partnerships or sole traders, require that, if necessary, a complete statement of the assets and liabilities of each partner be provided; and report to NZX each month in terms of these Regulations. These reports shall identify such trends in NZX Firms and industry performance and anticipated potential unsatisfactory situations or breaches of these Regulations as will assist NZX to continually assess, review and/or enhance the effectiveness of these Regulations and the role of the Inspector Situations giving rise to possible claims against the Fund: Where for any reason the Inspector becomes aware of any unsatisfactory feature, or any situation which in his or her opinion could give rise to a claim on the Fund, the Inspector shall: require NZX Firm concerned immediately to correct the situation or otherwise satisfy the Inspector that the Fund is not at risk; and at the same time, promptly report the matter to the Chair or in the Chair s absence, the Managing Director. Released: May of 91

75 13.4 Managing Director to report to the Board: The Managing Director shall include, in regular reports to the Board, reports from the Inspector provided under Regulation 13.2(h) Inspector to exercise due care and skill; Inspector not an auditor: In carrying out his or her duties, the Inspector shall exercise normal professional care and skill. The functions of the Inspector are not to be regarded for any purposes as an audit NZX Firm s liability for costs: Any NZX Firm shall be liable for the full costs of the Inspector and NZX for any and all work carried out by or on behalf of the Inspector and NZX in ensuring compliance with those Regulations. The administrative liability under these Regulations is not in any case to prevent the bringing of disciplinary charges. Failure to pay any demand under this Regulation 13.6 within 10 Business Days shall render NZX Firm liable for suspension Penalties for late filing of returns or records: Any NZX Firm failing to supply, by the specified date, any returns or records required by the Inspector or NZX under these Regulations shall be liable for a late filing fee as determined by NZX from time to time Failure to maintain Liquid Capital: Any NZX Firm failing to maintain Liquid Capital at the Prescribed Level at any time shall be immediately liable for consideration as a defaulter under Rule 14 of Part A of the Business Rules. Released: May of 91

76 GUIDANCE NOTES NZX Regulations Regulation Stands in the Market Special Order Facility Guidance Note Number: 02/01 1. PURPOSE 1.1 This document identifies the procedures NZX Firms must undertake during a stand in the market (or other bid or offer) where the Special Order Facility is used. This document should be read in conjunction with Regulation 6.14 Stands in the market and Regulation 6.15 Reporting requirements for escalation clauses or other benefits in market bids. 2. DEFINITION 2.1 Special Order Facility means the facility provided by NZX for the matching of orders using a special trading code established for that purpose. 3. INITIAL NOTICE ON CONFIDENTIAL BASIS 3.1 Regulation 6.14(d): Notice of the bid, including all relevant details, must be given to the Market Information Services section of NZX on a strictly confidential basis. Contact details are as follows: Telephone: Facsimile: Regulation 6.14: This notice should be provided to the Manager, Market Information Services who will act as stand manager to ensure that all Regulations and procedures are followed. The stand manager will also be responsible for all communications between NZX and NZX Firms throughout the duration of the stand. 3.3 Regulation 6.14(d) and Regulation 6.14(d)(iii): The initial notice of the stand must be kept confidential to the bidder and NZX until the process for the handling of acceptances is agreed with NZX, the stand bid is subsequently placed in the market, and the market is informed. 3.4 The agreement of NZX is required to the method of processing acceptances to be adopted and the form of advice to be given to the market for any use of the Special Order Facility. This is to ensure that FASTER trading and FASTER settlement can accommodate the Released: May of 91

77 bidder s intention and that NZX s concerns regarding the fairness of the bid to retail clients are satisfied. 3.5 NZX requires 24 hours advance notice of any intention to use the Special Order Facility (since arrangements may be needed for staff to handle processing) and may require the market to be advised on intended processing conditions in advance of receipt of the formal Stand Notice (even if there is uncertainty as to whether the stand will subsequently proceed). 4. INFORMATION REQUIRED BY NZX 4.1 Regulation 6.14(d)(vii): NZX Firm announcing the stand must advise of NZX the following information: (d) (e) (f) (g) name of the Issuer; class of Security; number of Securities (or percentage of issued capital) to be purchased; the price to be bid; the period for which the stand will remain open; details of the process of acceptance if the Special Order Facility is used; and details of any price escalation or other conditions. 4.2 Process of acceptance Where the Special Order Facility is to be used to facilitate acceptance processing, it is critical that information supplied to NZX regarding the processing of acceptances is correct, is able to be processed through FASTER settlement and is judged by NZX to be fair to retail clients. 24 hours notice of, and agreement to, 4.1(f) above is required by NZX for any use of the Special Order Facility. NZX may require the following information to determine how the processing of acceptances will proceed: will normal price and time priority and matching rules apply until bid is filled or withdrawn? Released: May of 91

78 (iii) (iv) (v) (vi) will time priority at a fixed price apply? what is the method of scaling of over-acceptances if post matching processing will be used? are there any selective requirements for acceptance (including a requirement for the shareholder number to be provided with the sell order)? is there any minimum acceptance required? is there a price escalation clause? 5. CLIENT ORDERS 5.1 Entering orders into FASTER trading Where acceptances are to be processed after matching in the market, NZX Firm placing the special order may require other NZX Firms submitting orders to be matched, to enter the shareholder number of the client in the Broker Reference field on the order entry screen in FASTER Trading. The shareholder number should be entered in this field and must precede, and be clearly separate from, any other information recorded in this field, such as the client adviser code/initials for example. 5.2 Shareholder number validation NZX will validate the shareholder number with the share registrar for the security and confirm the client s holding. This is particularly relevant where a stand in the market allocation process is targeted at retail shareholders. If an incorrect shareholder number is provided, no shareholder number is provided, or it is for more than 5% above the security available, the order will be cancelled. Otherwise it will be left or scaled to the lesser of the order or to the security available. If the shareholder attempts to sell more shares than the maximum number allowed under the stand, the order will be cancelled. This process enables selective processing of matched orders to ensure small shareholders can participate and to avoid gaming of the order through short selling and principal trading. Released: May of 91

79 (d) (e) (f) Trades that are matched in the Special Order Facility in order to facilitate acceptance processing are not confirmed Trades until NZX has completed any selective processing. Any scaling or adjustment of a trade is effected by cancelling the initial trade and creating a new trade with the same details. A Client Outward Transfer (COT) should not be performed by the Seller until confirmation from NZX is received that Trades have been confirmed. Doing so may invalidate otherwise legitimate acceptances when the holding is checked for available balance. 5.3 Nominee Accounts In order to accommodate those shareholders using broker nominee accounts, NZX Firms must first lodge an acceptance under the Special Order Facility for each nominee holder using the CSN of the nominee holder. (Note this requires all nominee account holders to have a CSN). This will prevent multiple applications through more than one Nominee Account. NZX Firms must then provide to NZX a file containing the following information for each nominee holder selling into the stand: (iii) (iv) NZX contract number for the matched acceptance (of the format yyyynnnnnnnnn); Common Shareholder Number of the nominee account holder; name of shareholder; and balance held under the nominee holding. (d) The information must be provided to NZX following the conclusion of the stand prior to 4.00pm on the final day of the stand. This information will override any information originally specified when the order was entered into FASTER Trading. This file must be provided to NZX in either an Excel or csv format and should be attached to an addressed to <[email protected]>. Released: May of 91

80 (e) (f) An example of the spreadsheet is available from NZX if required ( Trades marked as nominee Trades will be removed from the allocation process where the nominee details are incorrect for example, they are not uniquely qualified or do not contain a holding or balance. 6. TIMING 6.1 Regulation 6.14(d)(v): A stand in the market where the Special Order Facility is being used to facilitate acceptance processing requires one hour s final notice of price, quantity and security code to NZX. This provides NZX with sufficient time to communicate to the market and for NZX Firms to establish the appropriate internal procedures for management of their client orders. 6.2 Regulation 6.14(d)(xii): When the Special Order Facility is to be used, then the opening of the security used to facilitate the stand in the market is at the discretion of NZX. In making this decision, the Stand Manager will consider the following: the size of the stand and its potential impact on the normal market opening; and whether or not the market is sufficiently informed of the processes to be undertaken in regard to acceptance procedures. 6.3 Unless special reasons apply, stands in the Special Order Facility will not open before 10:00am or close after 3:00pm on a trading day. 7. MARKET OPERATIONS PROCEDURES 7.1 FASTER Trading: Regulation 6.14(d)(xi) On receipt of notice, if the bid is to be processed in the Special Order Facility, then NZX will proceed to establish a separate market for the security in FASTER. Several temporary special codes exist in FASTER trading on the Specials Board for this purpose namely SPEC1, SPEC2 and SPEC3. Notification to the market of temporary trading code and board will be disseminated by Market Operations via FASTER Trading Messages, to NZX Firms predetermined Released: May of 91

81 addresses for this purpose, and by facsimile to FASTER Dealers and FASTER Transfer Clerks. This will occur shortly after the official announcement of the stand has been released to the market. (d) (e) NZX Firms are responsible for providing a generic address to Market Control for this purpose e.g. <[email protected]>. For a stand in the market that is not subject to any conditions and where NZX Firm bidding can establish priority in the market at the nominated bid price, then a separate code on the Specials Board is not required as the stand can be conducted under the usual trading code for the security. 7.2 FASTER Settlement In addition to the trading code established in FASTER Trading, a FASTER settlement code will also be created by the Stand Manager. This code will be the Issuer Code, plus a suffix of Z, Y or X depending on availability. Trades executed in the Special Board will be mapped by Market Information Systems staff to this code prior to processing acceptances. Details of this code will be communicated to settlement departments. This FASTER settlement code will have a quotation basis of XX where the Special Order Facility is to be used to facilitate acceptance processing. This means that this is a reported transaction subject to change due to acceptance processing or price escalation. The impact on settlement for NZX Firms is that matched Trades will be reported to NZX Firms systems, but NZX Firms will be unable to lodge a Claim of Delivery until special processing has been completed and the XX status has been lifted from the Trades. The special processing of these transactions will have the following outcomes: (iii) unaffected Trades will stand with the trade date equal to the trade execution date; Trades that require adjustment will be cancelled. The cancellation date will be equal to the special processing date; and new Trades, reflecting the adjustments made will be created with a trade date that is equal the special processing date. Released: May of 91

82 7.3 Conclusion of the Stand On advice from NZX Firm that the stand has been completed, the temporary trading code will be placed in Enquiry in FASTER Trading by the Stand Manager. Notification of this event must be communicated to the market in accordance with the procedures for processing market announcements. 8. RESPONSIBILITIES OF THE ORGANISING BROKER 8.1 Regulation 6.14(d)(xiv): If the Special Order Facility is used, then only NZX Firm acting for the stand may place a bid order in the separate market established for the security. 8.2 Regulation 6.14(d)(xv): NZX requires that this bid be maintained until the instruction is completed or until notice is given to NZX by NZX Firm announcing the stand that the bid is withdrawn. 8.3 Regulation 6.14(d)(xvi): On advice from NZX Firm that the stand has been completed, closed or withdrawn, then an announcement to that effect must be made to NZX for dissemination to the market. Such notification must include detail on the level of acceptances. 9. RESPONSIBILITIES OF NZX FIRMS 9.1 Regulation 6.14(d)(xvii): When notice of a bid has been given, bids at other prices may be made by any person, including the original bidder, in the usual trading code for the security. 9.2 Contract notes: In a stand in the market where conditions are attached to the bid, NZX Firms accepting the bid for clients should note on contract notes with clients that the transaction is subject to the terms of the offer or similar wording. For Trades matched in the Special Order Facility under the quotation basis of XX, it should be noted that these are not confirmed Trades until notification from NZX has been received advising that they have been confirmed. This advice will be given by the Stand Manager following the completion of acceptance processing by Market Information Systems staff. Released: May of 91

83 NZX REGULATIONS Regulation 4 - Client Orders Guidance Note Number: 01/01 1. MINIMUM REQUIREMENT FOR INFORMATION FROM CLIENTS 1.1 Regulation 4.1 outlines the minimum information that must be recorded by all NZX Firms prior to any business being transacted with, or for, any person. 1.2 Regulation 4.1(vii) provides for circumstances where a client is unwilling to provide information or, where an NZX Firm may be in a position to vouch for a client due to a long association with that client. This provision should not be used by NZX Firms to avoid their obligations to record the minimum information required from clients under this Regulation. 1.3 Purpose: The purpose of minimum information requirements is to provide an additional layer of protection for the investing public against the possible fraudulent sale of Securities. 1.4 Requirement for Date of Birth: Under the requirement to provide date of birth information in Regulation 4.1(vii)(cc), NZX Firms may sight any number of documents containing that information in order to verify the identity of the client. 1.5 Requirement for IRD Number: NZX acknowledges that from time to time there may be clients who are unable to provide NZX Firm with a New Zealand IRD number, including (by way of example only) some overseas based clients and minors. In all other circumstances, the requirement to record the IRD number is mandatory. Providing a client s IRD number provides NZX and the share registry with a valuable tool to ascertain the uniqueness of an individual, and avoids duplicating holdings on the register. 1.6 Regulation 4.1(e): NZX Firms should note that: Released: May of 91

84 reference to person in this Regulation refers to the intermediary; if the intermediary is not an Investment Adviser then the Mandatory Disclosure Document would not be required. In regard to Regulation 4.1(e)(viii), while NZX encourages NZX Firms to obtain a CSN on behalf of their clients, if a CSN is not available then NZX Firms should use their discretion. 2. DATABASE 2.1 NZX Firms should have a database that is easily available to all employees and representatives of NZX Firm who are authorised to provide Security recommendations. 2.2 Such records should include all information necessary for use by employees and representatives when providing advice and services to clients in terms of the Code of Practice. 2.3 The database may be in either an electronic or paper based form or a combination of both. 2.4 Procedures should be established by NZX Firm to allow for the easy updating of client information. 2.5 The database of NZX Firm should seek, and where provided by the client, record the following information as appropriate in individual circumstances for each client where NZX Firm will be providing investment advice and Securities recommendations: (d) (e) (f) (g) (h) name and title; home address; mailing address (if different); Common Shareholder Number (CSN); occupation; employer; position; does client own home?; Released: May of 91

85 (j) (k) (l) (m) (n) (o) (p) (q) (r) (s) (t) (u) (v) (w) (x) (y) superannuation arrangements; family structure and dependants; marginal tax rate; other taxation considerations; funds available for investment; current level of liquidity; level of debt/extent to which the client is geared; special future requirements for cash; experience with investment in the stockmarket; investment objectives; personal investment interests and preferences; current portfolio; attitude to risk; if a company, the copy of the Board resolution allowing the holding of Securities; bank account details and settlement arrangements; IRD number; either: (iii) passport number; drivers licence number; or date of birth. 2.6 NZX Firms should note that where a client is a Professional Investor, the above information does not need to be requested. Released: May of 91

86 2.7 NZX recommends that a CSN should be applied for, or recorded, even if the client does not currently hold any New Zealand Securities. The allocation of a CSN gives assurance that Know Your Client procedures have been undertaken. 3. PRIVACY ACT In terms of the Privacy Act 1993, NZX Firms should take care when requesting information from clients that they advise of the reasons for collecting or requiring such information. 3.2 In terms of the information required under Regulation 4.1, NZX requires NZX Firms to record this information in order that the client s identity is confirmed to protect the client against unauthorised purchases or sales. 4. NEW CLIENT PROCEDURES 4.1 In addition to the requirements of Regulation 13.1(h), NZX suggests the following policies and procedures for adoption by NZX Firms: (d) separate the function of account opening and verification so as to ensure that the same person does not provide and verify client information; ensure a written record is kept which shows for each new client and account that is opened, the verification that was conducted of the client s information; do not accept the first order from a new client unless all client information is obtained and verified; additional enquiries should be made where the new client: (iii) (iv) is reluctant to provide information about themselves; wishes to conduct business in cash; has address that is a post office box; may be a minor, bankrupt or other person or entity which does not have the capacity to transact business on his, her or its own account. 5. VERIFYING INFORMATION Released: May of 91

87 5.1 It is also recommended that client identity be verified using information obtained from at least two different sources. 6. ONE-OFF TRANSACTIONS 6.1 Minimum information as required under Regulation 4.1 must be collected prior to transacting any business with or for any person. NZX Firms must be careful to ensure that they can establish the identity of a seller prior to any transaction in order to prevent a potential fraud occurring. 7. OTHER REGULATION 7.1 NZX Firms are reminded that the following Regulations also apply to their dealings with clients: (d) Regulation 2.1: Disclosure of Interest Regulation 2.2: Acting as Principal Regulation 2.3: Duty of Care Regulation 6.19: Client Orders Precedence 7.2 Regulation 4.2:Discretionary Accounts: Given the potential for Discretionary Accounts to be abused (e.g. excess trading, selection of investments that are unsuitable to a particular client), it is important for NZX Firms to ensure that persons operating Discretionary Accounts are adequately supervised. As such, a sufficiently senior person within NZX Firm or the nominated Compliance Officer, not involved in the operation of the relevant Discretionary Account, should review the account s operation on a semiannual basis. Attention is also drawn to the requirements of Regulation 13.1(g) which requires NZX Firms when managing portfolios under absolute authority to have such authority in writing ready to produce on request for the Inspector. 7.3 Regulation 4.3:Controls and procedures Representatives: The term Representative includes NZX Brokers and NZX Associate Brokers. Released: May of 91

88 (d) Compliance Officers: The Compliance Officer s role is to identify and report to the Managing Principal any suspected breaches of NZX Firm s internal procedures and policies, in addition to ensuring compliance with the Business Rules, Regulations and Code of Practice and any other statutory reporting requirements. Compliance and Procedure Manuals: In terms of Regulation 4.3, compliance and procedure manuals should be supplied to employees and representatives as they relate to their responsibilities within NZX Firm. Such manuals may be provided electronically. Re-performance checks: Under Regulation 4.3(d), NZX recommends that reperformance checks be carried out annually by NZX Firms. Such checks should aim to ensure that established controls and procedures regarding the receipt of orders, execution of trades and the settlement of transactions are effective. In addition, re-performance checks should include compliance with NZX Business Rules, Regulations and Code of Practice and any relevant statutory requirement in relation to NZX Firm s business. Ideally, NZX recommends that a random sample of orders from each order taker be selected for reperformance checking in an attempt to isolate any issues with control or procedure. 7.4 Regulation 4.4: Staff training NZX Firms should ensure that staff training covers induction training for new representatives and employees and all material aspects of the work in which representatives and employees will be engaged. Attention is drawn to Rule 3.14 of Part A of the Business Rules which requires each NZX Firm to ensure that all of its employees, officers, agents and principals who are acting as client advisers and/or investment advisers are NZX Associate Brokers. Conduct by a staff member of an NZX Firm that contravenes the Regulations may expose NZX Firm to disciplinary action. It is in the best interests of NZX Firms to ensure that staff are adequately trained in respect of both the Business Rules, the Released: May of 91

89 Regulations and the Code of Conduct and are properly supervised. (d) NZX Firms should pay particular attention to: (iii) (iv) supervision of branch offices; background checks of new employees; monitoring authorisation for staff orders, including those for senior staff; and reporting by compliance staff. 7.5 Current copies of the Business Rules, Regulations and Code of Practice are available on NZX s website: Regulation 4.5: Client trading All representatives and employees of NZX Firms dealing with external clients should have easy access to the Gazette Notice Insider Trading (Approved Procedure for Company Officers) Notice 1996, and be provided with training as to its interpretation and application. NZX Firms that suspect that the market for a security may be uninformed or that trading in a security is unusual, are encouraged to raise their concerns with the Market Information Services Department at NZX. Contact Mary Meyers Regulation 4.6: Trading by Representatives and Employees: In accordance with the Code of Practice, NZX Firms should seek to avoid conflicts of interest where possible. When conflicts do arise, NZX Firms should disclose these fully to any persons dealing with NZX Firm on matters which are the subject of conflict. NZX Firm must maintain a register of all Quoted Securities in which a Relevant Interest is held by NZX Firm, its representatives or employees to allow NZX Firm to identify potential areas of conflict between NZX Firm s activities and those of its representatives and employees and to allow Compliance Officers to check to ensure that appropriate disclosures are being made to clients; Released: May of 91

90 It is not NZX s intention that advisers supply clients with a copy of the register of Quoted Securities held by them. 7.8 Regulation 4.8: Recording of client instructions NZX Firms are encouraged to use voice recording systems where orders are taken over the telephone in order to corroborate, check and verify advice given and instructions received in order to the integrity of order taking. The length of time that tapes of client instructions are retained is up to each NZX Firm and will depend on the recording system used and the ability to retrieve information. NZX recommends that such tapes be kept for a minimum of 30 days, or longer in the case of any known dispute. NZX recognises that NZX Firms may have branch offices not under the direct supervision of a Compliance Officer. In such cases, the Compliance Officer may delegate the supervision of access to voice recording tapes to a suitable person on a case by case basis. Such authority may only be delegated to a person who has not been involved in the circumstances leading to the tape s review. ORDER NUMBERS 7.9 Regulation 4.8(iv): requires that orders be uniquely numbered. NZX Firms should note that where their internal systems automatically allocate a unique number for order reference that number is sufficient for the purposes of compliance with this Regulation. Released: May of 91

91 FORMS Released: May of 91