A securities market operator's use of the "please explain" price query and its impact on compliance

Market operators in New Zealand and Australia, such as the New Zealand Exchange (NZX) and the Australian Securities Exchange (ASX), have the regulatory power in their listing rules to issue queries to their market participants to explain unusual fluctuations in trading price and/or volume in the market. The operator will issue a price query where it believes that the market has not been fully informed as to price relevant information. Responsive regulation theory has informed much of the regulatory debate in securities laws in the region. Price queries map onto the lower level of the enforcement pyramid envisaged by responsive regulation and are one strategy that a market operator can use in communicating its compliance expectations to its stakeholders. The issue of a price query may be a precursor to more severe enforcement activities. The aim of this study is to investigate whether increased use of price queries by the securities market operator in New Zealand corresponded with an increase in disclosure frequency by all participating companies. The study finds that an increased use of price queries did correspond with an increase in disclosure frequency. A possible explanation for this finding is that price queries are an effective means of appealing to the factors that motivate corporations, and the individuals who control them, to comply with the law and regulatory requirements. This finding will have implications for both the NZX and the ASX as well as for regulators and policy makers generally.