FMA publishes NZX Obligations annual review

The FMA notes that NZX’s recent technology disruptions, experienced in April 2020, are not covered by this Obligations Review as they occurred after the review period.   However, as part of our ongoing monitoring of NZX, we have recently commenced a review to understand the cause of these technology issues, assess the overall appropriateness of NZX’s response, and consider NZX’s strategic management of technology more generally. While the FMA expects to comment on the findings of this technology review during this calendar year, those findings will also be reported in next year’s Obligations Review of NZX, covering the period from 1 January to 31 December 2020.

The report notes continued improvements from prior years, as well as identifying areas where the FMA expects to see improvements ahead of the next Obligations Review. The report includes these findings:

• NZX implemented several measures during the review period to improve the quality of continuous disclosure by market participants, however, the FMA considers that NZX Regulation’s approach to its assessment of continuous disclosure issues could have been enhanced in some instances.
• NZX has adequate arrangements in place to manage conflicts and is pursuing further enhancements to its conflicts management approach. However, the FMA notes that potential conflicts may arise because NZX’s policy decision-making sits within its commercial function.  While this is not an issue of itself, the FMA will continue to consider how the regulatory outcomes of NZX’s policy decisions are evaluated as part of the policy decision-making process.

This year’s review was completed within the constraints of the COVID-19 lockdown. The timing of the review coincided with record NZX trading volumes, significant market volatility and increased demand for capital raising.

The FMA considered that during this period, NZX’s resources, and those of market participants, were most appropriately directed at responding to these urgent COVID-19-related issues, rather than being diverted to provide feedback into the FMA’s assessment.

The FMA was unable to hold a face-to-face meeting with NZX, nor conduct onsite testing of its technology, because of the COVID-19 lockdown.  However, the FMA said its extensive engagement with, and monitoring of, NZX throughout the review period provided sufficient detail for the FMA to assess NZX’s compliance with its obligations.

This is an important review as NZX, the frontline operator and regulator of New Zealand’s licensed exchange plays a vital role in helping to achieve fair, orderly and transparent financial markets, to promote confident and informed participation by investors.

ENDS

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