The International

CapitalMarkets Review

Law Business Research

Sixth Edition

Editor

Jeffrey Golden

The International

Capitalmarkets Review

Sixth Edition

EditorJeffrey Golden

Law Business Research Ltd

PUBLISHER Gideon Roberton

SENIOR BUSINESS DEVELOPMENT MANAGER Nick Barette

BUSINESS DEVELOPMENT MANAGER Thomas Lee

SENIOR ACCOUNT MANAGERS Felicity Bown, Joel Woods

ACCOUNT MANAGER Jessica Parsons

MARKETING COORDINATOR Rebecca Mogridge

EDITORIAL ASSISTANT Gavin Jordan

HEAD OF PRODUCTION Adam Myers

PRODUCTION EDITOR Anne Borthwick

SUBEDITOR Gina Mete

CHIEF EXECUTIVE OFFICER Paul Howarth

Published in the United Kingdom by Law Business Research Ltd, London

87 Lancaster Road, London, W11 1QQ, UK© 2016 Law Business Research Ltd

www.TheLawReviews.co.uk No photocopying: copyright licences do not apply.

The information provided in this publication is general and may not apply in a specific situation, nor does it necessarily represent the views of authors’ firms or their clients. Legal

advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained

herein. Although the information provided is accurate as of November 2016, be advised that this is a developing area.

Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed

to the Publisher – gideon.roberton@lbresearch.com

ISBN 978-1-910813-35-5

Printed in Great Britain by Encompass Print Solutions, Derbyshire

Tel: 0844 2480 112

THE MERGERS AND ACQUISITIONS REVIEW

THE RESTRUCTURING REVIEW

THE PRIVATE COMPETITION ENFORCEMENT REVIEW

THE DISPUTE RESOLUTION REVIEW

THE EMPLOYMENT LAW REVIEW

THE PUBLIC COMPETITION ENFORCEMENT REVIEW

THE BANKING REGULATION REVIEW

THE INTERNATIONAL ARBITRATION REVIEW

THE MERGER CONTROL REVIEW

THE TECHNOLOGY, MEDIA AND TELECOMMUNICATIONS REVIEW

THE INWARD INVESTMENT AND INTERNATIONAL TAXATION REVIEW

THE CORPORATE GOVERNANCE REVIEW

THE CORPORATE IMMIGRATION REVIEW

THE INTERNATIONAL INVESTIGATIONS REVIEW

THE PROJECTS AND CONSTRUCTION REVIEW

THE INTERNATIONAL CAPITAL MARKETS REVIEW

THE REAL ESTATE LAW REVIEW

THE PRIVATE EQUITY REVIEW

THE ENERGY REGULATION AND MARKETS REVIEW

THE INTELLECTUAL PROPERTY REVIEW

THE ASSET MANAGEMENT REVIEW

THE PRIVATE WEALTH AND PRIVATE CLIENT REVIEW

THE MINING LAW REVIEW

THE EXECUTIVE REMUNERATION REVIEW

THE ANTI-BRIBERY AND ANTI-CORRUPTION REVIEW

THE LAW REVIEWS

www.TheLawReviews.co.uk

THE CARTELS AND LENIENCY REVIEW

THE TAX DISPUTES AND LITIGATION REVIEW

THE LIFE SCIENCES LAW REVIEW

THE INSURANCE AND REINSURANCE LAW REVIEW

THE GOVERNMENT PROCUREMENT REVIEW

THE DOMINANCE AND MONOPOLIES REVIEW

THE AVIATION LAW REVIEW

THE FOREIGN INVESTMENT REGULATION REVIEW

THE ASSET TRACING AND RECOVERY REVIEW

THE INSOLVENCY REVIEW

THE OIL AND GAS LAW REVIEW

THE FRANCHISE LAW REVIEW

THE PRODUCT REGULATION AND LIABILITY REVIEW

THE SHIPPING LAW REVIEW

THE ACQUISITION AND LEVERAGED FINANCE REVIEW

THE PRIVACY, DATA PROTECTION AND CYBERSECURITY LAW REVIEW

THE PUBLIC-PRIVATE PARTNERSHIP LAW REVIEW

THE TRANSPORT FINANCE LAW REVIEW

THE SECURITIES LITIGATION REVIEW

THE LENDING AND SECURED FINANCE REVIEW

THE INTERNATIONAL TRADE LAW REVIEW

THE SPORTS LAW REVIEW

THE INVESTMENT TREATY ARBITRATION REVIEW

THE GAMBLING LAW REVIEW

THE INTELLECTUAL PROPERTY AND ANTITRUST REVIEW

THE REAL ESTATE, M&A AND PRIVATE EQUITY REVIEW

THE SHAREHOLDER RIGHTS AND ACTIVISM REVIEW

THE ISLAMIC FINANCE AND MARKETS LAW REVIEW

i

The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:

ACKNOWLEDGEMENTS

AFRIDI & ANGELL LEGAL CONSULTANTS

ALLEN & OVERY

BHARUCHA & PARTNERS

BORENIUS ATTORNEYS LTD

DE PARDIEU BROCAS MAFFEI

DLA PIPER MARTÍNEZ BELTRÁN

FENXUN PARTNERS

G ELIAS & CO

HOGAN LOVELLS BSTL, SC

INTERNATIONAL COUNSEL BUREAU

KING & WOOD MALLESONS

KOLCUOĞLU DEMİRKAN KOÇAKLI ATTORNEYS AT LAW

MAPLES AND CALDER

MIRANDA & AMADO ABOGADOS

MKONO & CO ADVOCATES

MONASTYRSKY, ZYUBA, STEPANOV & PARTNERS

MORRISON & FOERSTER LLP / ITO & MITOMI

NIELSEN NØRAGER LAW FIRM LLP

PETER YUEN & ASSOCIATES IN ASSOCIATION WITH FANGDA PARTNERS

Acknowledgements

ii

PINHEIRO NETO ADVOGADOS

P.R.I.M.E. FINANCE FOUNDATION

REED SMITH

RUSSELL MCVEAGH

SIDLEY AUSTIN LLP

SYCIP SALAZAR HERNANDEZ & GATMAITAN

TOKUSHEV AND PARTNERS

URÍA MENÉNDEZ ABOGADOS, SLP

VIEIRA DE ALMEIDA & ASSOCIADOS, SOCIEDADE DE ADVOGADOS, SP RL

iii

Editor’s Prefaces ..................................................................................................vii Jeffrey Golden

Chapter 1 AUSTRALIA ............................................................................... 1Ian Paterson

Chapter 2 BRAZIL .................................................................................... 22Ricardo Simões Russo, Gustavo Ferrari Chauffaille and Luiz Felipe Fleury Vaz Guimarães

Chapter 3 BULGARIA ............................................................................... 30Viktor Tokushev and Nataliya Petrova

Chapter 4 CHINA ..................................................................................... 40Xusheng Yang

Chapter 5 COLOMBIA ............................................................................. 56Camilo Martínez Beltrán and Sebastian Celis Rodríguez

Chapter 6 DENMARK .............................................................................. 66Thomas Weisbjerg and Peter Lyck

Chapter 7 FINLAND ................................................................................ 77Juha Koponen, Janni Hiltunen, Mark Falcon and Matias Keso

Chapter 8 FRANCE .................................................................................. 87Antoine Maffei and Olivier Hubert

Chapter 9 GERMANY ............................................................................. 115Kai A Schaffelhuber

Chapter 10 HONG KONG ....................................................................... 126Vanessa Cheung

CONTENTS

iv

Chapter 11 INDIA .................................................................................... 139Vishnu Dutt U

Chapter 12 IRELAND ............................................................................... 150Nollaig Murphy

Chapter 13 JAPAN .................................................................................... 173Akihiro Wani and Reiko Omachi

Chapter 14 KUWAIT ................................................................................ 187Abdullah Al Kharafi and Abdullah Alharoun

Chapter 15 LUXEMBOURG ..................................................................... 198Frank Mausen and Henri Wagner

Chapter 16 MEXICO ................................................................................ 220René Arce Lozano, Mayuca Salazar Canales and Elías Muñoz García

Chapter 17 NEW ZEALAND .................................................................... 231Deemple Budhia and John-Paul Rice

Chapter 18 NIGERIA ................................................................................ 240Fred Onuobia and Bibitayo Mimiko

Chapter 19 PERU ...................................................................................... 249Nydia Guevara V and Álvaro del Valle R

Chapter 20 PHILIPPINES ......................................................................... 256Maria Teresa D Mercado-Ferrer, Joan Mae S To and Jo Marianni P Ocampo

Chapter 21 PORTUGAL ........................................................................... 274José Pedro Fazenda Martins, Orlando Vogler Guiné and Sandra Cardoso

Chapter 22 RUSSIA ................................................................................... 286Vladimir Khrenov

Contents

v

Chapter 23 SPAIN ..................................................................................... 301David García-Ochoa Mayor and José María Eguía Moreno

Chapter 24 TANZANIA ............................................................................ 312Kenneth Mwasi Nzagi

Chapter 25 TURKEY ................................................................................ 317Umut Kolcuoğlu, Damla Doğancalı and Aslı Tamer

Chapter 26 UNITED ARAB EMIRATES ................................................... 327Gregory J Mayew and Silvia A Pretorius

Chapter 27 UNITED KINGDOM ............................................................ 341Tamara Box, Ranajoy Basu, Claude Brown, Nick Stainthorpe, Caspar Fox, James Wilkinson, Jacqui Hatfield, Winston Penhall and Daniel Winterfeldt

Chapter 28 UNITED STATES................................................................... 370Mark Walsh and Michael Hyatte

Appendix 1 ABOUT THE AUTHORS ...................................................... 387

Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS ........ 405

Contents

vii

EDITOR’S PREFACE TOTHE SIXTH EDITION

There is a lesson from the international capital markets that took me, as a young ICM lawyer, a measure of time to both comprehend and appreciate. It was namely this: in matters legal, market participants have a marked preference for certainty above almost anything else. Even sometimes ahead of justice!

Market participants need to know where they stand.You see, you can trade or structure around a position that you know to be certain,

however undesirable that position may be, and whether or not you believe it to be fair. What is abhorred is not knowing what your position is. Eventually being told by a court after months or years of litigation, for example, that you were correct in your earlier view does not give a lot of comfort if, waiting on that answer, you stood ‘naked’ to a market that has moved on and significantly against you while you remained uncertain whether, when and to what extent to hedge your exposure or otherwise move in reliance on the position you had previously assumed.

Let me give you an extreme example of this preference for certainty over justice as it is reflected in the terms widely used by the derivatives markets when structuring a trade under my favourite contract form, the ISDA Master Agreement. There, a library of product-specific definitional booklets provide various terms tied to particular product markets, including details of pricing sources, relevant market conventions, and fallbacks and adjustments for when a given source may not be available and for other market disruptions. Relevant booklets can be incorporated into the parties’ trade confirmations and thus added to the parties’ contract on an ‘as and when needed’ basis.

Many of these booklets include a provision that is widely embraced for trades that base their prices on published and displayed screen rates. It provides, for example, that where a relevant rate for a pricing date is based on information from certain sources such as a Reuters screen page the rate is, as you might expect, subject to corrections made by that source – but only if the correction is made within one hour of the time when the

relevant rate is first displayed.1 After that, even if the displayed rate has an extra zero in it, and even if it is later corrected, the rate as it stood one hour out becomes the irrevocable basis for the relevant pricing of the transaction. That is the potentially harsh but, in order to ensure certainty, market-preferred position.

This desire for timely and reliable answers can also be seen by the considerable contractual privilege and discretion afforded, for example, to a non-defaulting party by allowing it to self-determine a close-out amount following its counterparty’s default. That determination is subject to good faith and reasonableness. However, a conscious decision was taken that the number of issues subject to referral to court for determination, and the evidentiary basis on which those issues should be decided, would, in each case, be narrow. It was intended that it should be of no consequence if, perhaps with the benefit of hindsight, a better answer could be determined by the court. It was thought more important by the markets that an answer honestly derived by a party could be relied upon as final so that the party could move on.

Whether it is the measure of their claims following a default, the scope of their exposure to market risk, or the strength of their collateral credit support, market participants hate surprises. They need to know where they stand. They seek authoritative answers that can be relied upon. And they trust in the rule of law.

My former law partner, Philip Wood CBE, QC (Hon) recently published a fascinating book.2 In it, Philip argues that the challenge set for our planet is survival, that the rule of law has supplanted religion in providing the basis for a morality that will be necessary to ensure that survival, and that it falls to lawyers to form a ‘priesthood’ capable of providing relevant answers, as well as preserving the certainty and order, that can contribute to that quest for survival.

And yet we look out at a marketplace with more than a little uncertainty at the moment (Brexit, a worrying US presidential election looming, equally worrying ongoing world political tensions and even conflict, a systemically relevant global financial institution facing crippling fines and a crisis of confidence, cyber insecurity, etc.). Perhaps not surprisingly then, the press reports that the value of initial public offerings has fallen by about a third this year when compared with last year in this period of market volatility and political uncertainty.

That is where this book comes in (with a new jurisdiction, Hong Kong, having been added). Our legal experts who have contributed have been tasked with promoting legal certainty through guidance about where matters relevant to the international capital markets stand in their home jurisdictions. They are our priests!

Join them, and take up Philip Wood’s challenge. If you are reading this book, it is almost certainly because someone is looking to you for answers – looking to you to provide the legal certainty the capital markets seek.

1 See, e.g., 2006 ISDA Definitions, Section 7.6.2 Philip R Wood, The Fall of the Priests and the Rise of the Lawyers, (Hart Publishing Ltd, 2016).

viii

Editor’s Preface to the Sixth Edition

My admiration for our contributing experts continues, and of course I shall be glad if their collective effort proves helpful to our readers when facing the important challenge of framing the correct answers.3

Jeffrey GoldenP.R.I.M.E. Finance FoundationThe HagueNovember 2016

3 Did I finally make it through a preface without mentioning the Global Financial Crisis?

Editor’s Preface to the Sixth Edition

ix

231

Chapter 17

NEW ZEALAND

Deemple Budhia and John-Paul Rice1

I INTRODUCTION

New Zealand’s capital markets are in the final stage of a period of regulatory transition. The previous securities laws have been replaced by the omnibus Financial Markets Conduct Act 2013 (FMC Act). With certain limited exceptions, the FMC Act came fully into force on 1 December 2014, with a two-year transition period. From the end of the transition period on 1 December 2016, offers of financial products must be made under the FMC Act, and the licensing, governance and dealing provisions of the FMC Act will be fully operative. The Financial Markets Authority (FMA), which is the principal regulator in respect of financial products, has received a large number of licence applications ahead of the 1 December deadline, and we expect a flurry of activity in the final run to the line.

i Structure and regulation

New Zealand has a legal system based on English common law. New Zealand’s laws include legislation made by Parliament, rules made by local councils and the common law, which is developed by judges. Legislation made by Parliament overrides the common law. The court system is a hierarchy of courts that includes two appeal courts (the highest of which is the Supreme Court) whose decisions are binding on courts below them in the hierarchy.

Offers of financial products in New Zealand are regulated by the FMC Act and regulations made under the FMC Act (Regulations). There is a two-year transitional period that ends on 1 December 2016, from which time all offers of financial products must be made under the FMC Act and can no longer be made under the Securities Act 1978 (Securities Act). The FMC Act and the Regulations:a impose fair dealing obligations on conduct in both the retail and wholesale financial

markets;

1 Deemple Budhia and John-Paul Rice are partners at Russell McVeagh. The authors would like to thank and gratefully acknowledge the assistance of Lucy Becke and Edward Elvin.

New Zealand

232

b set out new disclosure requirements for offers of financial products;c introduce a regime of exclusions and wholesale investor categories in connection with

the disclosure requirements;d reform the law relating to governance of financial products; ande introduce a new licensing regime.

A summary of the FMC Act provisions applicable to offers of financial products in New Zealand is provided in this chapter.

FMC ActFinancial productsUnder the FMC Act, an offer of financial products for issue requires disclosure to investors unless an exclusion applies to all persons to whom the offer is made. Certain specified offers of financial products for sale will also require disclosure to investors.

There are four categories of financial products: debt securities, equity securities, managed investment products and derivatives, each of which is separately defined. A managed investment product refers to an interest in a managed investment scheme, which is broadly defined to include any scheme:a the purpose or effect of which is to enable participating investors to contribute money

to the scheme to acquire an interest in the scheme; b where the interests are rights to participate in or receive financial benefits produced

principally by the efforts of others; andc where participating investors do not have day-to-day control over the operation of the

scheme.

The definition of derivatives is wide and explicitly includes transactions that are commonly referred to in New Zealand or overseas financial markets as futures contracts, forwards, options (other than options to acquire by way of issue equity securities, debt securities or management investment products), swap agreements, contracts for difference, margin contracts, rolling spot contracts, caps, collars, floors and spreads.

The FMA has the power to declare that a security that would not otherwise be a financial product is a financial product of a particular kind.

Regulated offersAn offer of financial products that requires disclosure is a ‘regulated offer’. An offer that is not a regulated offer will still be subject to the general fair dealing provisions in the FMC Act.

The disclosure required in relation to each financial product is set out in the Regulations and is tailored according to the characteristics of the particular product being offered.

Other legislation and legislative bodiesOther key statues regulating New Zealand’s financial sector include the Financial Reporting Act 2013, the Companies Act 1993 (Companies Act), the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA), the Financial Markets Authority Act 2011, the Financial Advisers Act 2008 (FAA), the Reserve Bank of New Zealand Act 1989 (RBNZ Act), the Insurance (Prudential Supervision) Act 2010 (IPS Act), the Non-bank Deposit Takers Act 2013 (NBDT Act), the Financial Markets Supervisors Act 2011 and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AMLA).

New Zealand

233

The principal regulatory bodies for New Zealand’s financial sector are:a the FMA, whose principal objective is to promote and facilitate the development

of fair, efficient and transparent financial markets. The FMA’s functions include monitoring compliance with and investigating conduct that constitutes or may constitute breaches of financial markets legislation, and licensing and supervising authorised financial advisers, qualifying financial entities, security trustees and statutory supervisors; and

b the Reserve Bank of New Zealand (Reserve Bank), which is responsible for the prudential regulation of banks, non-bank deposit takers and insurance providers.

Under the FMC Act, a person making a regulated offer of debt securities is required to appoint a licensed supervisor and enter into a trust deed with that supervisor; and issuers of regulated managed investment products under the FMC Act are required to register the management investment scheme, appoint a licensed supervisor and licensed manager, and enter into a governing document. The licensing regime in respect of supervisors is set out in the Financial Markets Supervisors Act 2011, which includes compliance and reporting obligations for securities trustees and statutory supervisors, and permits the FMA to remove a supervisor in certain circumstances.

ii Authorisation and licensing

There are no direct government controls on the issuing of financial products in New Zealand, either by New Zealand or foreign companies. However, market participants may need to obtain registrations or authorisations when participating in New Zealand’s capital markets, depending on the type of activity an entity is proposing to conduct in New Zealand.

Overseas company registrationThe Companies Act requires any company incorporated outside New Zealand that is ‘carrying on business’ in New Zealand to register as an overseas company. Whether a particular activity or activities constitute ‘carrying on business’ will be a question of fact and degree. Registration as an overseas company in New Zealand is a relatively simple process, although there are ongoing compliance obligations for overseas companies, including the requirement to lodge annual returns with the Registrar of Companies, and (for entities of a certain size) to prepare and file financial statements.

Financial service provider registrationSubject to certain limited exceptions, the FSPA requires any person who carries on the business of providing a ‘financial service’ and is ordinarily resident in New Zealand, has a place of business in New Zealand or is required to be a licensed provider under a licensing enactment (which includes registered banks, authorised financial advisers, certain licensed supervisors and others) to be registered for that service on the Financial Service Providers Register (FSP Register). The FSP Register is a public register, and financial service providers that provide financial services to retail clients must also join an approved dispute resolution scheme, subject to certain limited exceptions.

The definition of financial services is broad, and financial service providers would include:a financial advisers, brokers, licensed non-bank deposit takers and registered banks;b any person participating in a regulated offer as the issuer or offeror of the

financial products;

New Zealand

234

c any person acting in the capacity as an issuer, supervisor or investment manager in respect of a regulated product;

d any person acting as a custodian or offering a licensed market service;e operators of financial products markets; andf any person that trades financial products or foreign exchange on behalf of another

person.

Most participants in the financial services industry in New Zealand will be required to register under the FSPA. Registration is a simple process, and registered entities are required to pay annual fees depending on the nature of the financial services being provided.

Financial advisersA person who provides financial adviser services (or broking services) in the ordinary course of his or her business to clients in New Zealand is required to comply with certain disclosure, conduct and registration requirements under the FAA. The requirements apply regardless of where the person providing the financial adviser service is resident, is incorporated or carries on business.

A person provides a financial adviser service if he or she gives financial advice, provides an investment planning service or provides a discretionary investment management service. Financial advice is given where a person makes a recommendation or gives an opinion in relation to acquiring or disposing of a financial product (which would include equity securities and debt securities).

Financial adviser services exclude, inter alia:a any form of communication made by or on behalf of an issuer or offeror of financial

products that is not a regulated offer due to a relevant exclusion (which includes offers to wholesale investors);

b providing or making available a product disclosure statement, other limited disclosure document, or information from a register entry or advertisement under the FMC Act; and

c financial adviser services covered by a market services licence for discretionary investment management services.

The FAA imposes different requirements depending on the type of products being advised on, the intended audience (whether wholesale or retail) and the type of advice (personalised or generic class advice). For example, the requirements for a financial adviser providing personalised financial advice to a retail client will be more onerous than the requirements for a provider of class advice to wholesale clients.

Bank or insurance company registrationRegistration as a New Zealand registered bank is not required to provide banking or financial services, or to offer or sell financial products in New Zealand. However, pursuant to the RBNZ Act no person can ‘carry on any activity’ (directly or indirectly) in New Zealand using a name or title that includes a ‘restricted word’. The restricted words are ‘bank’, ‘banker’ or ‘banking’, or any derivative thereof (and includes a translation of those words into another language). The IPS Act contains a similar prohibition in relation to the use of ‘insurance’, ‘assurance’, ‘underwriter’ and ‘reinsurance’ (and terms with the same or a similar meaning). The prohibitions do not apply under the RBNZ Act where the entity is a registered

New Zealand

235

bank or under the IPS Act where the entity carries on insurance business in New Zealand (which would require the entity to hold an insurance business licence). If a potential issuer wishes to use a restricted word in its name but not register as a bank or obtain an insurance business licence, an application can be made to the Reserve Bank seeking an authorisation or exemption.

Non-bank deposit takers (NBDTs)NBDTs are persons who make a regulated offer of debt securities to the public in New Zealand and carry on the business of borrowing and lending money, or providing financial services, or both. The definition is broad, and captures entities beyond traditional finance companies at which the regime was originally targeted. The NBDT Act requires NBDTs to be licensed by the Reserve Bank. NBDTs are subject to prudential supervision by the Reserve Bank with the relevant supervisor (trustee) tasked with monitoring an NBDT’s compliance with the relevant prudential requirements.

iii Offers of financial products

New Zealand has a disclosure-based approach to the offer of financial products to the public. An offer of financial products for issue will require full disclosure to investors under Part 3 of the FMC Act unless an exclusion applies (and limited disclosure is required for offers made in reliance on some FMC Act exclusions).

In addition, certain offers of financial products for sale (secondary sales) also require disclosure. For example, if financial products are issued (but not, inter alia, under a regulated offer) with a view to the original holder selling the products and the offer for sale is made within 12 months of the original issue date, that secondary offer will require disclosure.

The FMC Act applies to any offer of financial products in New Zealand regardless of where the resulting issue or transfer occurs, or where the issuer is resident, incorporated or carries on business.

For a regulated offer of financial products, a product disclosure statement (PDS) must be prepared, and certain information relating to the offer must be contained in a publicly available register entry for the offer. The PDS must be lodged with the Registrar of Financial Service Providers and the register entry must contain all material information not contained in the PDS. ‘Material information’ means information that a reasonable person would expect to, or that would be likely to, influence persons who commonly invest in financial products in deciding whether to acquire the financial products on offer and is specific to the particular issuer or the particular financial product. Investors to whom disclosure is required must (subject to certain exceptions) be given the PDS before an application to acquire the relevant financial products under a regulated offer is accepted.

The Regulations set out detailed requirements for the timing, form and content of initial and ongoing disclosure for financial products, including limited disclosure for products offered under certain FMC Act exclusions. The content requirements for a PDS are prescriptive, and include prescribed statements and page or word limits. The Regulations impose different disclosure requirements for different types of financial products.

The FMC Act includes an exclusion for offers to ‘wholesale investors’, which includes: a ‘investment businesses’; b people who meet specified investment activity criteria; c ‘large’ entities (those with net assets of at least NZ$5 million or consolidated turnover

over NZ$5 million in each of the two most recently completed financial years);

New Zealand

236

d ‘government agencies’; e ‘eligible investors’; f persons paying a minimum of NZ$750,000 for the financial products on offer; g persons acquiring derivatives with a minimum notional value of NZ$5 million; and h bona fide underwriters or sub-underwriters.

Even where an exclusion applies, certain disclosure requirements may still apply.

LiabilityIf a PDS, any application form that accompanies that PDS or the register entry relating to a financial product contains a statement that is false or misleading or likely to mislead, and that matter is materially adverse from the point of view of an investor, there is potential civil liability under the FMC Act. Where a person acquires a financial product that declines in value after a misleading statement is made, that person is treated as having suffered loss or damage because of that misleading statement unless it is proved that the decline in value was caused by a matter other than the relevant statement. This reverses the usual onus of proof, and means that investors will no longer need to show the link between the misleading statement and the loss they have suffered to obtain an order for compensation.

Every director of the offeror, licensee, authorised body or entity at the time of the contravention will be treated as also having contravened such provision of the FMC Act, and can be ordered to pay a pecuniary penalty or compensation. A number of defences are available to that director, including if he or she can prove that he or she took all reasonable and proper steps to ensure that the entity complied with the relevant provision.

Criminal liability can also attach if the offeror knows that, or is reckless as to whether, the statement is false or misleading or likely to mislead. In such circumstances, a director of an offeror may also commit an offence if the director knows or is reckless as to whether the statement is false or misleading or likely to mislead.

iv Some other features of New Zealand’s capital markets

Regulation of derivativesOffers of derivatives are regulated by the FMC Act, and issuers are required to prepare and lodge a PDS in respect of a regulated offer of derivative products.

‘Derivatives issuers’ (meaning a person that is in the business of entering into derivatives) who make regulated offers of derivatives are required to hold a market services licence (unless an exemption applies). In addition to the exclusions discussed above, there are some exclusions under the FMC Act that apply specifically to offers of derivatives, including:a offers of derivatives made by a person who is not a ‘derivatives issuer’; b offers of quoted derivatives on a licensed market; c offers of derivatives approved for trading on a prescribed overseas market; and d offers of currency forwards by registered banks (or their subsidiaries) where settlement

is within 12 months of issue.

If a ‘derivatives issuer’ makes a regulated offer of derivatives, they will also be required to ensure that a client agreement is in place with the counterparty prior to the issue of the derivative and provide confirmations to the counterparty.

New Zealand

237

Exchanges and marketsThe FMC ActA person who wishes to operate a financial product market in New Zealand will be required to obtain a licence to operate that market from the FMA or the responsible minister under the FMC Act. NZX Limited (NZX) is currently a licensed market operator in New Zealand and is registered to operate the NZX Main Board (NZSX, the NZX’s original equities market), the NZX Debt Market (NZDX), the NZX Alternative Market (NZAX, for small to medium-sized businesses) and the newly launched NXT, which is intended to replace the current NZAX.

NZXListed issuers whose securities are quoted on one of NZX’s registered markets will be subject to the NZX Listing Rules applicable to that market and the FMC Act. The Listing Rules set out a number of obligations for issuers, including obligations to prepare and deliver to NZX annual and half-yearly reports that contain certain prescribed information, and to make a preliminary announcement to the market before the release of each annual and half-yearly report. Listed entities must also describe their corporate governance practices in detail in their annual reports.

In addition, listed entities must comply with the continuous disclosure requirements of the NZX Listing Rules, and disclose price-sensitive information to the market (by means of an announcement to NZX) immediately once they become aware of the information. There are limited exceptions to this disclosure obligation.

Listed entities must also in certain circumstances release material information to the market to prevent the development or subsistence of a market for its securities based on false or misleading information.

ClearingThere are two principal settlement and clearing systems operating in the New Zealand financial markets: the NZClear system currently operated by the Reserve Bank (formerly known as Austraclear) and the clearing and settlement system operated by New Zealand Clearing and Depository Corporation Limited (a wholly owned subsidiary of NZX) (NZCDC). NZCDC clears and settles all trades conducted on NZX’s markets.

NZClear and the NZCDC have each been declared to be a designated settlement system for the purposes of the RBNZ Act. As a result, those systems are subject to statutory protections in relation to, inter alia, the enforceability of the rules, the finality of settlements and the validity of netting in respect of those systems.

New Zealand is not a member of the G20 and has not introduced legislation to require standardised over-the-counter derivatives contracts to be cleared through central counterparties.

Corporate governanceDirectors’ duties in New Zealand are prescribed by legislation, in particular the Companies Act and the common law. As fiduciaries, directors owe duties to:a act honestly, exercise care and diligence; b act in good faith in the best interests of the company and for a proper purpose; c not improperly use their position or company information; and d disclose their material personal interests and avoid conflicts of interest.

New Zealand

238

Directors have duties regarding financial and other reporting and disclosure, solvency matters and reckless trading.

The Companies Act permits directors to rely on information or advice supplied by employees, professional advisers or experts, and other directors or directors’ committees provided that the director acts in good faith, makes proper enquiries where warranted by the circumstances, has no knowledge that such reliance is unwarranted and has reasonable grounds to believe that his or her reliance on another person was warranted. Breaches of certain directors’ duties under the Companies Act attract criminal liability.

At least one director of a company incorporated in New Zealand must live in New Zealand, or in an ‘enforcement country’ where that director is also a director of a company registered (not as an overseas company) in that enforcement country. Similar requirements apply to limited partnerships under the Limited Partnerships Act 2008. At present, Australia is the only country prescribed as an ‘enforcement country’.

Anti-money launderingNew Zealand’s anti-money laundering regime is set out in the AMLA.

The AMLA applies to ‘reporting entities’. A reporting entity means a ‘financial institution’ (a wide definition, which includes a person who participates in securities issues and provides financial services related to those issues in the ordinary course of business), a casino and any other person or class of persons deemed to be a reporting entity under the regulations or any other enactment.

The AMLA includes customer due diligence, reporting and record-keeping requirements, and in addition requires financial institutions to develop and maintain a risk assessment and a risk-based AML/CFT programme. The AMLA provides for external supervision of entities subject to the Act to monitor the level of risk of money laundering and the financing of terrorism involved in an entity’s activities, and to ensure programmes are appropriately tailored to address those risks.

II THE YEAR IN REVIEW

i Issuances under the FMC Act

Approaching the end of the two-year transition period for the FMC Act, overall the transition to the new regime has been relatively smooth. A large number of debt and equity issuers have opted to issue financial products under the new regime using the newly introduced quoted financial product (QFP) exclusion. The QFP exclusion allows issuers to offer equity securities, debt securities or managed investment products of the same class as financial products that are quoted on an appropriate licensed market without a PDS. The issuer must issue a ‘cleansing notice’ to the market (which includes a confirmation that the issuer is complying with its continuous disclosure and financial reporting obligations), as well as a document setting out the terms and conditions applicable to the financial product (commonly a short term sheet). Use of the QFP exclusion has become the norm in the debt and equity markets, and will in our view to continue to be a valuable and much-utilised tool.

The second half of 2015 saw the largest block trade in New Zealand’s capital markets history with Origin Energy’s NZ$1.4 billion block trade of Contact Energy shares (which, combined with a NZ$200 million special dividend and NZ$200 million redeemable preference shares redemption, took the total transaction value to NZ$1.8 billion).

New Zealand

239

The largest capital markets transaction in 2016 will be the demerger of Trustpower Limited, which will demerge into a new NZX listed hydro and retail business, and an NZX and ASX listed wind and solar energy business. The demerger is being effected by way of a scheme of arrangement under the Companies Act and will involve a distribution in species of shares in the two new demerged entities. The transaction also involves a redemption of all of Trutstpower’s existing NZX listed bonds, and an issue of new bonds by the NZX listed hydro and retail entity. This transaction will close in October 2016.

ii Markets services licences under the FMC Act have been issued

The FMC Act introduced a new ‘market services licence’ regime. The FMA has issued market services licences to derivatives issuers, managers of managed investment schemes, independent trustees and providers of discretionary managed investment services.

In addition, a local crowdfunding market has quickly developed using the crowdfunding rules under the FMC Act, with several market participants having been issued a crowdfunding licence.

The FMA has also been very busy issuing exemptions under the FMC Act to replace corresponding exemptions under the old Securities Act regime.

III OUTLOOK AND CONCLUSIONS

The past 12 months have been busy for the New Zealand capital markets, with a plethora of issuances across the equity and debt spectrum. We expect that trend to continue into the next 12 months, and the stream of equity and debt issues using the QFP exclusion to continue. The next few months will also see a large volume of market services licence applications being processed by the FMA ahead of the 1 December 2016 deadline for transition to the FMC Act.

In September 2016, a High Court trial brought by the FMA commenced in relation to charges of market manipulation against a portfolio manager (Mark Warminger) at one of New Zealand’s highest profile asset managers (Milford Asset Management). The charges followed an investigation into market manipulation that the FMA conducted in July 2015, which resulted in Milford paying a NZ$1.5 million settlement amount. There has been a paucity of New Zealand case law in this area.

A review of New Zealand’s financial adviser and financial service provider regulation under the FAA and FSPA is currently underway, and a final report by the Ministry of Business Innovation and Employment was released in July 2016. The report recommends a number of changes to the current regime, including:a removing the definitions of class and personalised advice;b removing the requirement for personalised advice to be provided by a natural person,

to enable the provision of ‘robo-advice’;c introducing uniform conduct and competence obligations, including requiring all

platforms and people providing financial advice to put customers’ interests first and only provide advice when competent to do so; and

d requiring businesses to have a stronger connection to New Zealand to register on the FSPA.

The proposed changes to the regime will be refined further through consultation on an exposure draft of the new legislation, and testing with consumers and industry late in 2016, with the aim of introducing a Bill to the House at the end of 2016.

387

Appendix 1

ABOUT THE AUTHORS

DEEMPLE BUDHIARussell McVeaghDeemple Budhia is a specialist in securitisation, covered bonds, debt capital markets, derivatives and financial services regulation. Prior to joining Russell McVeagh, she spent several years in London working in Allen & Overy’s securitisation team and Citibank’s European commercial property and securitisation team.

JOHN-PAUL RICERussell McVeaghJohn-Paul Rice is a specialist in corporate and acquisition finance, debt capital markets, derivatives and financial services regulation. Prior to joining Russell McVeagh, he worked in banking and finance teams at Allens in Melbourne, Linklaters in London and Herbert Smith Freehills in Perth.

RUSSELL MCVEAGHLevel 30Vero Centre48 Shortland StreetAuckland 1140New ZealandTel: +64 9 367 8000Fax: +64 9 367 8163deemple.budhia@russellmcveagh.comjohn-paul.rice@russellmcveagh.comwww.russellmcveagh.com