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Our Complaint into NZX's "Independent Research Reports" 

Our Investigation into the FMA's commitment to "protect the interests of retail investors

The FMA's unsuccessful attempt to regulate, censor or close our business

The NZ Stock Exchange publishes 
"Meridian Energy Independent Research Reports"

NZX Limited (which runs the NZ stock exchange) is publishing what it calls "Meridian Energy Independent Research Reports" on its website ( . . . but this appears to breach the Financial Advisers "Code of Professional Conduct" in New Zealand which strictly regulates when the term "independent" may be used, and other NZ securities regulations.

Unfortunately, while the NZ market is heavily regulated (e.g. Ross Asset Management was registered and authorised to provide investment management services) there is little or no investigation or enforcement. You can find out more about this for yourself later, but let's get back to the NZ Stock Exchange "independent" research.

In the Code of Professional Conduct "Code Standard 3" deals with when advice may (and may not) be called "independent". It even gives the following example where "neither the Authorised Financial Adviser nor the financial advisory services may be described as independent":

"(c) the AFA or a related person of the AFA will or may directly or indirectly receive a benefit from a person other than the client for providing the services or from the client's acquisition of a financial product".

That would appear to clearly exclude stockbroker advice on an IPO - as they are paid a percentage commission by the vendor of the shares based upon the volume of "product" they can sell to the investor.

You may also consider advice from Investment Banks (touting for future IPO business and a share of the $40 million fees involved) to not be "independent" under the normal meaning of that word, but the code ignores benefits that are "remote or insignificant". A share of $40 million in future fees isn't "insignificant" but is probably "remote". So under the Code of Conduct, the Investment Bank advice can probably be called "independent" (even though no normal person would consider it so).

If we may digress again for a moment, you will probably be very surprised to learn that Code Standard 3 allows an AFA to receive "fees as a contractor that are not determined by volume or other targets" and still call their advice "independent". So a company seeking to manipulate its share price can pay a broker or adviser a fixed sum of (say) $100,000 to write a "must buy" recommendation and that report can be called "independent" under the code.

Clearly the "Code of Conduct" was not written by investors or anyone seeking to put "investors interests first" (which is another story from the same book of Fairy Tales, entitled "Code Standard 1").

The NZX is not an AFA, so the Code of Conduct does not apply. Nevertheless, it is probably "misleading and deceptive" for them to associate the word "independent" with their biased selection of five "Buy" reports (and no "Don't Buy" reports) for Meridian Energy.

Does NZX have a financial interest in the success of this float? You bet! As a very large company it will generate significant initial and recurring listing fees. A successful float would also lead to further Government share floats - and even more ongoing listing fees - while an unsuccessful float could see this policy cancelled.

So, who is in charge of enforcing NZ's securities regulations? That job used to fall on the Securities Commission, but after the Finance company debacle, the government "rebranded" this (with a new set of equally ineffective laws) to the Financial Markets Authority - allowing the current NZ government securities regulator incarnation to distance itself from the previous NZ government securities regulator's past problems and refer to them as "legacy issues".

[Editor's Note: This is a misleading and deceptive trick learned from the Funds Management industry: A poorly performing fund will be closed and replaced with a new, but virtually identical clone fund - thereby eliminating the poor historical track record.]

The FMA welcomes information or complaints from the public. They do not have any meaningful in-house investigative function - and there is a limit to how much can be found from just internet searches - so they rely on information from the public.

The FMA website invites investors to "Talk to us!". It states: "If you have concerns you can complain to the Financial Markets Authority. For example, you may feel the adviser [broker] has not put your interests first. A complaint to the FMA may lead to disciplinary action for a breach of the Code of Conduct."

As we have outlined above, there appears to be some evidence that an AFA may be in breach of "Code Standard 3" and/or that NZX website may be "misleading and deceptive". This is a job for the FMA!

If you go to their website ( and report your concerns over these matters then you can judge for yourself how impartially the FMA applies the law and how seriously they take their regulatory responsibilities and commitment to "protect the interests of retail investors". Or is the FMA involved in a conspiracy and cover-up to protect the vested interests of the Government, Stock Exchange, brokers and other powerful interests in the Finance industry?

The truth is out there. Let's investigate together.

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