Michael Sullivan, Partner, Leahy Lewin Lowing Sullivan: Viewpoint

Viewpoint: Michael Sullivan

The last two years have seen the Parliament enact a variety of new legislative acts, much of which is of a high standard. New acts include the Kumul Legislation, which is designed to positively effect the current government’s agenda for state-owned enterprises and businesses, along with the holding of the state’s interest in mining projects and oil and gas projects. Other legislative highlights include the new personal property security legislation, amendments to the Land Act and a complex suite of new securities legislation. The new securities framework is of particular interest because it comprehensively overhauls the existing securities regime and potentially heralds the end of an independent stock exchange in Papua New Guinea.

The new securities legislation is not yet in force and will not be until the legislation is certified by the speaker of the National Parliament and following a notice in the National Gazette, which could take several years. The new securities legislation will bring securities regulation in PNG much more into line with current practices in New Zealand and, to a lesser extent, Australia. The legislative intention is that the Capital Markets Act will replace the Securities Act 1997 and that the minister for trade, commerce and industry will prescribe a new takeovers code, which will replace the current Takeovers Code 1998. The Securities Commission of PNG (SCPNG) is still working on the New Takeovers Code, and it seems unlikely that the government will allow the new securities legislation to come into force until the code has been approved by the minister.

Assuming that the Capital Markets Act eventually comes into force in its present form, it will significantly affect the Port Moresby Stock Exchange (POMSoX), which is currently PNG’s only approved stock market. Formed in 1998, POMSoX has a constitution and a board of directors and is limited by shares. Except as specifically provided in the Securities Act, POMSoX regulates itself and POMSoX’s board of directors makes all material decisions concerning market operations. However, when the new legislation comes into force, the establishment and operation of stock exchanges will be regulated by the Capital Markets Act which is considerably more proscriptive and far reaching.

Unlike the Securities Act, the Capital Markets Act imposes a variety of restrictions and conditions on who may be a member of a stock exchange. This will effectively prevent POMSoX continuing as an approved stock exchange with its current ownership structure.

Under the Capital Markets Act, a variety of new restrictions will come into effect concerning the appointment of directors of a stock exchange. Onethird of the directors will be appointed by the minister of trade, commerce and industry in consultation and with the concurrence of the commission. The act will also require the constitution of an exchange to provide for the appointment of a non-executive chairman from among the directors appointed by the minister.

The ability of the government to influence stock exchanges will increase dramatically if the minister appoints the chairman along with one-third of the directors, which is not required by the current Securities Act. In addition, unlike the existing legislation, the Capital Markets Act attempts to regulate the acquisition and disposal of assets by a stock exchange.

The Capital Markets Act also gives the SCPNG power to issue suspension orders to prohibit trading in particular securities, to close a stock exchange and to issue directions to a bourse. Except for the power to prohibit trading in particular securities, the Securities Act does not give the SCPNG such broad powers.

While it is arguable that the existing act does not give the SCPNG adequate powers to regulate securities markets in a modern economy, the new Capital Markets Act may go too far in the other direction and give too much power. In the wrong hands, this new power could be greatly abused. In a broad sense, once the Capital Markets Act comes into force a truly independent stock exchange in PNG will become an institution of the past.