Executive Summary
2. At the end of 2007, Cabinet invited the Minister of Commerce to issue drafting instructions to the Parliamentary Counsel Office to give effect to Cabinet decisions in relation to clearing and settlement systems, securities and futures exchanges, and various other technical amendments relating to emissions units (CBC Min (07) 22/11 and CAB Min (07) 44/4B).
3. Following initial engagement with NZX in 2007, the government undertook targeted consultation with a wider group of stakeholders. A discussion document was released for public consultation in February 2008, in conjunction with an exposure draft Emissions Units, Settlement Systems, and Futures Bill.
4. The Settlement Systems, Futures, and Emissions Units Bill is intended to signal that trades in securities and other products can be cleared and settled through systems that meet the expectations of international and domestic participants. The Bill provides settlement systems operating in New Zealand with the option of applying for designation and being regulated to relevant international standards. In return, a designated settlement system receives additional legal protections to support the integrity of the system in the case of a participant's insolvency or default.
5. The Settlement Systems, Futures, and Emissions Units Bill also reduces compliance costs by amending the Securities Markets Act to align the regulation of exchanges seeking to operate in both the securities and futures markets, and by enacting that a person approved by the operator of an authorised futures exchange is an authorised futures dealer. NZX is expected to benefit from these amendments through a reduction in compliance costs.
6. The Settlement Systems, Futures, and Emissions Units Bill clarifies the regulatory treatment of emissions units to support the development of the market for emissions units. The Bill gives effect to this policy through a number of technical amendments to existing legislation. There is nothing in the Bill that is necessary for the operation of the New Zealand Emissions Trading Scheme.
7. Settlement systems contribute to a well functioning capital market, capital market development, and world class infrastructure objectives. Consultation on an exposure draft of the Emissions Units, Settlement Systems, and Futures Bill revealed significant concerns about the provision of settlement services and how these systems are expected to develop in future. These concerns warrant further analysis of our settlement services in terms of competition, structure, ownership, and governance of our settlement services.
8. I therefore announced that I intend to undertake further consultation on wider questions concerning New Zealand's settlement system infrastructure, while the Settlement Systems, Futures, and Emissions Units Bill is progressed through Parliament. This paper outlines some of the questions that I intend to consider in the course of that review, as part of a New Zealand approach to clearing and settlement.
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