5. Changes Relating to Futures Markets
5.1 Overseas experience has shown that a large proportion of trading in equities, bonds, currencies, emissions units and other commodities has occurred in the form of futures contracts, and that it is important therefore to ensure that New Zealand's regulatory environment for futures exchanges allows for emissions trading.
5.2 The changes in this section are based on the premise that the conduct rules, market infrastructure, and regulatory oversight role of the Securities Commission are sufficiently similar for both securities markets and futures markets to justify greater integration and streamlining.
Futures Exchanges
5.3 Currently a person who describes themselves as a "stock exchange" or "securities exchange", or who wishes to hold themselves out as a regulated securities market, must apply to the Minister of Commerce to be a registered exchange under Part 2B of the Securities Markets Act 1988. If the same exchange wishes to hold itself out as a regulated exchange for trading in futures contracts in New Zealand, the exchange must apply separately to the Securities Commission for authorisation under Part III of the Securities Markets Act. This results in unnecessary compliance costs.
5.4 The Draft Bill amends the Securities Markets Act so that a registered securities exchange under Part 2B of the Securities Markets Act may be registered either for trading securities only or for trading securities and futures contracts (see clause 15 of the Draft Bill). An exchange registered for operating securities markets and futures markets will be deemed to be an authorised futures exchange under Part III of the Securities Markets Act (see clause 26 of the Draft Bill).
5.5 Subsequent changes to the existing (or introduction of new) conduct rules of a registered futures exchange that relate to futures markets are to be made on the basis of provisions similar to the current disallowance and approval provisions for the conduct rules of registered exchanges under the Securities Market Act (see Part 3 of the Draft Bill).
Futures Dealers
5.6 Currently futures dealers are required to apply to the Securities Commission to obtain authorisation to deal in futures contracts.
5.7 The Draft Bill codifies the effect of a number of class authorisations that have previously been granted for persons who are participants under a specified futures exchange. For example, there is an existing authorisation for NZX participants under the Authorised Futures Dealers Notice (No 3) 2004. Accordingly, all dealers in futures contracts who have been approved by a registered exchange to deal in the futures contracts will be deemed to be authorised to carry on the business of dealing in futures contracts for the purposes of Part III of the Securities Markets Act (see clause 27 of the Draft Bill).
5.8 This removes the need for futures dealers, who have already been subjected by the registered exchange to a substantially similar application process for admission as a participant in its futures market, from the need to separately seek authorisation from the Securities Commission.
Futures Contracts
5.9 The Draft Bill clarifies the definition of "futures contract" so that it extends to a futures contract for emissions units (see clause 44 of the Draft Bill). It is unlikely that the current definition in the Securities Markets Act 1988 is broad enough to include an emissions unit. Clarifying this definition provides certainty as to the application of the futures contract regime in the Securities Markets Act to futures contracts for emissions units. Officials consider it desirable to extend the definition to both NZ ETS units and non-NZ ETS units. This will enable authorised futures exchanges to trade in voluntary market units as well as NZ ETS units.
Clarification of the General Powers and Functions of the Securities Commission
5.10 The Draft Bill makes amendments to the Securities Markets Act 1988 to clarify that the Securities Commission has the power to review and comment on the law relating to, and activities on, futures markets and registered clearing and settlement systems, including advising the Minister in relation to conduct rules (see Part 3 of the Draft Bill).
5.11 This will give clear guidance to the market and potential participants as to the Commission's statutory functions and powers as regulator.
Specific Questions
In addition to the questions set out in paragraph 1.13, please consider the following question:
- Are securities and futures markets of a sufficiently similar nature to warrant these changes?
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