What is it and how does it apply to off-market offers to buy shares?

Regulatory capture is a suitably grim expression which can be used to describe the situation when governments and regulators — such as the Financial Markets Authority (FMA) — are lent on by powerful vested interests and their lobbyist mates putting forward persuasive one sided arguments, to enact legislation which will protect their position.

If you're a big company you can afford to navigate complex regulation as you go about your business, to the extent that you may well like complex regulation because it can create a barrier to enter into a particular industry for new participants.

At this point (if you're a big company), you're starting to view regulators rather favourably. And of course, if you can persuade them to write complex new laws that favour your activities, you're winning all the way. You achieve the outcomes you're looking for by paying major law firms to write submissions setting out the non-problem that's irritating you and simultaneously suggesting a legislative solution.

In 2010/11, there was pretty much no law at all when it came to two individuals deciding to buy and sell shares to each other. And why should there be? What's the difference in making an offer to buy someone's shares as compared to say, offering to buy their house or car? Shares are the private property of the individual that owns them. Why should they not be free to sell their shares on whatever terms and conditions they choose? They're not being forced to accept any offer that is made to them. They can choose to ignore the offer or tell the person making it that they're not interested.

When you buy and sell on a site such as Trade Me, you don't expect that the government should be involved in deciding how much you'll have to pay for anything, or whether the vendor should be allowed to sell to you at the price they're happy to accept at. You don't expect and probably definitely would not want the government interfering in your right to buy and sell property and possessions of all sorts at whatever price and on whatever terms you can happily negotiate.

Well, this is exactly what happened with the purchase and sale of shares in public companies in New Zealand in mid-2011. Urged on by a few major public companies and their lobbyist at New Zealand's most prominent commercial law firm, the National Government of the day and the Financial Regulator (the FMA) were persuaded that the off-market sale and purchase of shares should be heavily regulated. Besieged by arguments that individuals should no longer be free to buy and sell their own property (shares) to each other on whatever terms they'd agreed. Suffocating legislation governing the buying and selling of shares was added to the new Financial Markets Act at the last minute.

What a sad day for private property rights. You would have thought that a National Government would have known better. That they would have had the fortitude to stand up to this sort of self-serving nonsense. Aren't they supposed to have some regard for self-determination, for the free market, for individuals taking responsibility for themselves? Or is it that these optimistic sentiments count for nothing when push comes to shove.