Exchange puts heat on broking firms

The Government looks to toughen up on insider trading laws, reports FIONA ROTHERHAM

The Stock Exchange is reviewing how broking firms handle orders from company insiders following the Securities Commission inquiry into share dealings by former Fletcher Challenge chairman Kerry Hoggard.

And the Government is expected to draw on lessons from the Hoggard investigation and toughen insider trading laws.

After a five-month investigation, the commission this week found that Mr Hoggard, one of New Zealand's wealthiest men, broke insider trading laws when he bought 390,0000 shares in December on the eve of a major company restructuring announcement.

The commission also reviewed the procedures of broking firms in dealing with transactions in listed companies on behalf of people known to be insiders. Its conclusions will be subject to a separate report.

Finance Minister Michael Cullen said last night that he expected New Zealand would look to bring its legislation more into line with Australia, where criminal prosecutions can be laid against insider traders.

In New Zealand the law can require profits from inside deals to be repaid - which is what occurred in the Hoggard case where $58,000 was returned to shareholders.

The Stock Exchange review may be a pre-emptive move ahead of the commission's assessment of brokers.

Exchange managing director Bill Foster said the case triggered the need for a review of whether there were consistent standards among members.

"A little firm is likely to have different procedures to the big international ones and it is useful on occasions like this to have a look at it."

Commission chairman Euan Abernethy said it had found that the big broking firms had procedures in place but many smaller firms did not.

Mr Hoggard placed his order through broking firm J B Were.

The commission said although J B Were had received information from an insider it found no evidence that the firm had then traded on this information.

It reviewed all purchases of FCL stocks made through J B Were and other brokers on the day Mr Hoggard made his purchase and the following day when the restructuring was announced.

J B Were has a best-practice guide for employees in possession of inside information.

The commission said the employee who dealt with Mr Hoggard did not observe the guide when the order was placed.

J B Were said the employee considered Mr Hoggard to be an experienced and highly respected company director who was openly purchasing shares in his own name. It did not occur to him that the former FCL chairman was imparting inside information or that the guide's terms applied.