Government gives Unlisted free rein to trade

The Government last night backed away from regulating the Unlisted share trading facility, declaring it did not have sufficient evidence to show the service was harming the securities markets.

But Commerce Minister Pete Hodgson has still warned that Unlisted might cause confusion about the protections available to traders using the service. He also said the facility might still be regulated by bringing it under the Securities Markets Act.

"Should trading volumes increase or concrete evidence of investor confusion arises, the issue of regulation may need to be reconsidered."

As Unlisted is not a registered stock exchange, investors in companies quoted on the facility are not protected by the act's insider trading and continuous disclosure provisions.

Hodgson said he could not satisfy the critical test necessary to bring Unlisted under the act, that the facility was "likely to cause harm".

This is a sharp turnaround on the view in December of then Commerce Minister Margaret Wilson.

When notifying Unlisted of her plan to regulate it, Margaret Wilson said: "I am satisfied that result of section 36 of the Securities Markets Act not applying to the person operating Unlisted securities market is likely to be detrimental to the integrity and effectiveness of securities markets ... and the confidence of invest-ors."

Wilson based her assessment on the size of Unlisted, which has 21 firms with a combined market capitalisation of $900 million, and the possibility that it was undermining New Zealand Exchange's smaller companies market, NZAX.

She also cited comparable overseas regulation and the potential for Unlisted to confuse investors about the protections the market offered.

Unlisted chairman Bevan Wallace said the Government's decision reinforced the facility's positive contribution to business.

"We are delighted the Government agrees that Unlisted has a legitimate position within New Zealand's broader capital markets.

"Its decision gives certainty to our issuer companies and their shareholders, and to potential issuers and other capital market participants."

Manager Bruce Cossill said the review had cost Unlisted about $120,000 and it would not rule out trying to recover costs.

"Unlisted has in place a number of protocols designed to avoid investor confusion.

"Apart from prominent website notices, investors must sign a disclaimer acknowledging Unlisted's unregistered status and what that means, before conducting trades through their brokers."