Stricter insider trading laws in view

Stricter insider trading laws moved a step closer to becoming a reality yesterday as a select committee recommended Parliament pass the Securities Legislation Bill with few significant changes.

Introduced by then Commerce Minister Margaret Wilson last November, the bill introduces criminal remedies for insider trading, including prison terms of up to five years, and boosts civil remedies.

Roger Wallis, a Chapman Tripp partner specialising in securities law, said there were no "fundamental relaxations" in the Commerce Select Committee's 194-page report outlining amendments. The Government aims to have the bill passed by November 1. "The bill has definitely been improved from how it was introduced," said Wallis. "[But] it is still going to remain a very complex piece of law."

One of 29 submissions on the bill came from the Institute of Directors, which wanted plans to abolish approved procedure for when directors can buy or sell shares in their companies dropped.

The institute warned this move would discourage directors from owning shares in companies they serve. However, the committee has left this provision of the bill unchanged.

Institute chief executive Nicki Crauford said yesterday this meant there were ongoing implications for directors and how they behaved. Questions would be raised as to whether shares should be included in directors' and executives' remuneration packages. "If they can't actually sell the shares, or it's a major risk to sell the shares, then it's difficult to recommend that as a means of remuneration," Crauford said.

Meanwhile, changes the committee has recommended include:

* Allowing the Securities Commission and Takeovers Panel to share information with the Commerce Committee in their efforts to police misleading and deceptive conduct.

* Excluding minor infringements from orders banning people from acting as company director or manager.

* Excluding bank term deposits from the definition of "security".

* Ensuring "legitimate" research and analysis can be raised as a defence to insider trading prohibitions.

The bill makes amendments to the 1978 Securities Act, 1988 Securities Markets Act, 1993 Takeovers Act and the 2000 Takeovers Code. It will introduce an insider-trading regime similar to Australia's where the focus is on the threat insider trading poses to market integrity and confidence rather than the current law which emphasise a breach of duty owed to a company.

Bell Gully partner Roger Partridge, who is defending expatriate businessman David Richwhite against insider trading charges, said it appeared too little had been done to resolve the practical difficulties and workability of the insider trading provisions and exceptions.

"They [the select committee] seem to have got a whole series of half measures rather than solutions to the problems that were pointed out during the select committee process," Partridge said.

Reasons for change

* The Government says new, tougher securities law is needed as existing laws are ineffective.
* No one has been found liable for insider trading since the 1988 Securities Markets Act came into effect.
* The Government claims an effective and enforced insider-trading regime would boost confidence in the securities markets and attract capital to New Zealand.