12.1 Content of certificate and report: The certificate and report referred to in Rule 16.2 of Part A of the Business Rules shall deal with the following financial matters:
(a) balance date;
(b) have all books and records required for the purpose of this certificate been regularly and properly kept;
(c) have any Securities held for safe custody been pledged in any way;
(d) were all Securities held for safe custody (if any) examined;
(e) if a client is financed, does the market value of the Securities held cover the amount of the advance;
(f) were all Securities lodged by the clients for sale and Securities purchased for clients and paid for by them held unencumbered;
(g) did the market value of assets as shown by the books exceed NZX Firm's commitments at the date of the audit;
(h) were the assets taken into account readily realisable;
(i) does the statement of assets include private assets not usually included with business assets;
(j) are there any contingent liabilities, and if so, of what amount.
(Note: Under this heading, a full report must be furnished of any oversold position).
(k) are there any other matters or circumstances which, in the auditor's opinion, affect the financial position of NZX Firm;
(l) has all the necessary information been available to enable this certificate to be given.
13. INSPECTION
13.1 NZX Firms’ Obligations: Each NZX Firm shall, in relation to its Stockbroking Business:
(a) keep accounting records as required by Regulation 11;
(b) take out and forward to the Inspector, to be received by the Inspector not later than the 10th Business Day of the following month, a copy of a trial balance as at the last day of every month. Such trial balance shall provide details as to the name or nature of each balance;
(c) set out the trial balances filed under this Regulation in the forms (FF1 and FF2) from time to time required by NZX so as to provide immediate information as to the solvency of the business and NZX Firm's compliance with Rules 3 and 18 of the Business Rules, and Regulation 10. The forms shall include a statement, signed by the Managing Principal of NZX Firm, that NZX Firm complies with the Regulations, and that the accounting records are up to date as at the time of signing the statement;
(d) reconcile all balances outside of FASTER, whether debit or credit, and in all currencies with all NZX Firms and other parties, including overseas brokers making monthly reconciliations, on the last Business Day of each month;
(e) reconcile all balances with other overseas brokers at least every month. The reconciliations shall be completed and delivered no later than the sixth Business Day of the following month, and shall in each case list those overseas brokers, if any, from whom no statement has been received;
(f) prepare a profit and loss account and balance sheet within two months of the end of NZX Firm’s financial year and notify the Inspector immediately that such profit and loss account and balance sheet has been completed;
(g) when managing client portfolios under absolute authority, as required by Regulation 4.2 have such client’s authority in writing and produce it on request by the Inspector;
(h) establish and maintain proper and prudent procedures for confirming the identity of new clients and the authority for any orders in accordance with Regulation 4.1 In particular, these procedures shall cover the information required and checks to be made to verify that proper authority is provided with sell orders to execute the transfer of ownership on behalf of the client;
(i) when managing client portfolios with ability to transfer Securities or when registering a client's transactions in a name or names other than that of the client:
(i) as required by Regulation 4.2(c), supply each client, quarterly or at such other interval as is agreed with the client, with a detailed schedule of the portfolio, sales, purchases and market value of holdings (including those belonging to the client but dealt with in other names); and
(ii) satisfy the Inspector that this has been prepared in sufficient detail;
(j) establish and maintain systems of internal control within NZX Firm. It is the responsibility of NZX Firm’s Management to ensure that this Regulation is complied with at all times;
(k) ensure that, in determining the scope and nature of effective internal control, its Management considers (among other things):
(i) the size of the business;
(ii) the diversity of operations;
(iii) the volume and size of transactions;
(iv) the degree of risk associated with each area of operations;
(v) the amount of control by Management over day-to-day operations; and
(vi) the degree of centralisation and the methods of data processing.
In particular, the internal control shall be designed to ensure that:
(vii) all transactions and commitments entered into are recorded and are within the scope of authority of the person entering into such transactions or commitments;
(viii) there are procedures to safeguard assets and control liabilities; and
(ix) there are measures, so far as is reasonably practicable, to minimise the risk of losses to the business from irregularities, fraud or error and identify such matters if they occur so that prompt remedial action may be taken by Management;
(l) ensure accounting records comprise the orderly collection and summary of the information in question, rather than being a mere accumulation of documents. All records shall be maintained in sufficient detail and with sufficient cross-references to establish an adequate audit trail. The audit trail shall include all records, working papers and schedules supporting the production of annual financial statements and all financial reporting statements;
(m) ensure that all records are arranged, filed and indexed in such a manner as to permit ready access to any particular record. Where an NZX Firm maintains its records in any manner other than on paper in an easily legible form, then it shall also provide facilities for the prompt access to these records and for the prompt production of copies of these records on paper in such easily legible form;
(n) maintain procedures for the maintenance, security, privacy and preservation of the records so that they are reasonably safeguarded against loss, unauthorised access, alteration or destruction; and
(o) for NZX Firms that are partnerships or sole traders, provide a complete statement of assets and liabilities of each partner if required by the Inspector.
13.2 Inspector’s Powers and Duties: The Inspector shall, in ensuring that NZX Firms are complying with their responsibilities under Rules 17.3 and 17.4 of Part A of the Business Rules:
(a) record the receipt of trial balances for the purposes of ensuring that, prima facie, accounting records are written up to date;
(b) inspect the separate accounting and internal control records of every NZX Firm at least once in each calendar year to determine if NZX Firms are carrying out their duties under these Regulations. In particular, the Inspector shall test the records to the extent he or she considers necessary to enable him or her to form a prima facie opinion as to the effectiveness of the system in operation and the accuracy of the accounting and internal control records;
(c) on each visit, review the Security trading records, and where NZX Firm's solvency depends on the present value of Securities held on each visit, consider the current market value of such investments in relation to their book value;
(d) review the procedures relating to reconciliations, internal systems and Management of portfolios to become satisfied that the Regulations are in all respects being complied with;
(e) inspect and/or access, at any time, such information, network, system, equipment or process of any NZX Firm as the Inspector in his or her discretion considers necessary to ensure any NZX Firm, or its employees, observes and complies with, the Rules, the Regulations, the Code of Practice and with Good Stockbroking Practice;
(f) carry out sample verification (the extent to be at the Inspector’s discretion), based on audit procedures, of clients' accounts;
(g) (if required by NZX), report on the financial capacity of an NZX Firm in relation to any underwriting contract entered into;
(h) in respect of NZX Firms that are partnerships or sole traders, require that, if necessary, a complete statement of the assets and liabilities of each partner be provided; and
(i) report to NZX each month in terms of these Regulations.
These reports shall identify such trends in NZX Firms and industry performance and anticipated potential unsatisfactory situations or breaches of these Regulations as will assist NZX to continually assess, review and/or enhance the effectiveness of these Regulations and the role of the Inspector.
13.3 Situations giving rise to possible claims against the Fund: Where for any reason the Inspector becomes aware of any unsatisfactory feature, or any situation which in his or her opinion could give rise to a claim on the Fund, the Inspector shall:
(a) require NZX Firm concerned immediately to correct the situation or otherwise satisfy the Inspector that the Fund is not at risk; and
(b) at the same time, promptly report the matter to the Chair or in the Chair’s absence, the Managing Director.
13.4 Managing Director to report to the Board: The Managing Director shall include, in regular reports to the Board, reports from the Inspector provided under Regulation 13.2(h).
13.5 Inspector to exercise due care and skill; Inspector not an auditor: In carrying out his or her duties, the Inspector shall exercise normal professional care and skill. The functions of the Inspector are not to be regarded for any purposes as an audit.
13.6 NZX Firm’s liability for costs: Any NZX Firm shall be liable for the full costs of the Inspector and NZX for any and all work carried out by or on behalf of the Inspector and NZX in ensuring compliance with those Regulations. The administrative liability under these Regulations is not in any case to prevent the bringing of disciplinary charges. Failure to pay any demand under this Regulation 13.6 within 10 Business Days shall render NZX Firm liable for suspension.
13.7 Penalties for late filing of returns or records: Any NZX Firm failing to supply, by the specified date, any returns or records required by the Inspector or NZX under these Regulations shall be liable for a late filing fee as determined by NZX from time to time.
13.8 Failure to maintain Liquid Capital: Any NZX Firm failing to maintain Liquid Capital at the Prescribed Level at any time shall be immediately liable for consideration as a defaulter under Rule 14 of Part A of the Business Rules.
GUIDANCE NOTES
NZX Regulations
Regulation 6.14 - “Stands in the Market – Special Order Facility”
Guidance Note Number: 02/01
1. PURPOSE
1.1 This document identifies the procedures NZX Firms must undertake during a stand in the market (or other bid or offer) where the Special Order Facility is used. This document should be read in conjunction with Regulation 6.14 – “Stands in the market” and Regulation 6.15 –
“Reporting requirements for escalation clauses or other benefits in market bids”.
2. DEFINITION
2.1 Special Order Facility means the facility provided by NZX for the matching of orders using a special trading code established for that purpose.