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46. The Ministry of Economic Development consulted closely with the Securities Commission, the Reserve Bank of New Zealand, and the Treasury in the preparation of the Settlement Systems, Futures, and Emissions Units Bill as part of an inter-agency working group. The Department of the Prime Minister and Cabinet, the Ministry of Agriculture and Forestry, the Ministry for the Environment, and the Emissions Trading Group have also been consulted.

47. Following initial engagement with NZX in 2007, the government undertook targeted consultation with a wider group of stakeholders in the preparation of a discussion document which was released in February 2008, with an exposure draft of the proposed legislative amendments. The Ministry of Economic Development received 19 submissions on the exposure draft Emissions Units, Settlement Systems, and Futures Bill. The most significant submissions are summarised below with the government's responses.

1. Submitters were generally critical of the consultation and policy development process, requesting more time to make comments, wider consultation, workshops and additional consultation documents. A significant proportion of submitters expressed concern that legislation was drafted solely to further NZX's commercial interests. The government has since individually met with a number of submitters to hear their concerns and will conduct further consultation as part of a New Zealand approach to clearing and settlement.
2. Several submitters were concerned that the implications for New Zealand's financial market infrastructure should be further examined given the public utility nature of clearing and settlement systems. These implications will be examined in parallel to the passage of the legislation as part of a New Zealand approach to clearing and settlement.
3. At least one submitter suggested that the proposed joint-regulator model would be difficult to make operational, suggesting that a single or primary regulator is more suitable. Officials are confident that the joint-regulator model is the best model for recognising both the Reserve Bank of New Zealand and the Securities Commission's interests in the regulation of settlement systems and the joint-regulators are preparing a memorandum of understanding to govern their roles. Cabinet agreed to the preparation of a memorandum of understanding (CAB Min (07) 44/4b) and this is currently under development, although it is not an explicit requirement in the Settlement Systems, Futures, and Emissions Units Bill and Cabinet does not have authority to direct independent agencies.
4. At least one submitter requested a process for managing potential conflicts of interest within the Reserve Bank of New Zealand, given its roles as industry regulator and operator of Austraclear. Institutional arrangements are in place to ensure a high degree of independence between the Reserve Bank's operations and policy functions. The joint regulator model also addresses potential conflict of interest relating to the Reserve Bank being the operator of Austraclear NZ.
5. A couple of submitters were critical of the requirement to seek the regulator's approval for every "critical rule" change that is material to the designation order. This process has been amended to assume that any rule change is valid unless challenged and disallowed by the regulators within a specified period before the rule comes into effect.
6. One submitter requested that the regulation of designated payment systems be delineated from designated settlement systems. The proposed legislation has been amended to reflect that the Securities Commission has a limited interest in systems that solely settle payments, in recognition of the status quo for payment systems under part 5C of the Reserve Bank Act.
7. Several submitters suggested that the approval criteria for a designated settlement system should explicitly include adequacy of financial resources and adequacy of the system's arrangements in the event of a default by the central clearing party. These criteria are implicit in the more general criteria outlined in the Settlement legislation.
8. A couple of submitters suggested that improvements could be made to provisions on collateral, priority, and the Personal Property Securities Act. Where possible, these provisions have been refined, but general submissions on the Personal Property Securities Act are outside the scope of this policy process.
9. Several submitters were concerned that the proposed amendment relating to the authorisation of futures dealers removed the ability of the Securities Commission to authorise futures dealers independently. This is not the case; the proposed amendments simply codify the status quo in legislation.
10. Many submitters were confused by the bundling of emissions trading issues with generic financial market reform, and felt this was a barrier to understanding the legislative amendments. Officials have therefore been careful to delineate the discrete policy issues for emissions units and settlement systems in their advice. Officials also see merit in separating the technical amendments relating to emissions units into a standalone bill, although not at the expense of the increased administration required to introduce and process two separate bills.
11. Several submitters suggested that government should either regulate the quality of voluntary emissions unit registers, which are recognised by the Settlement Systems, Futures, and Emissions Units Bill, or that it should restrict the Bill to the compliance market. The government has taken the view that voluntary carbon markets are complementary to regulated markets. As such, the technical amendments have not been restricted to the compliance market. However, the technical amendment providing that entry on an emissions unit register is prima facie evidence to title has been removed, removing the need to define which registers (and which voluntary emissions units) are recognised by the Settlement Systems, Futures, and Emissions Units Bill.
12. At least one submitter was concerned that the government was willing to clarify how the futures regime applies to emissions units but not other products; and others submitted that the proposed changes failed to distinguish between futures and physical forward contracts. Officials are satisfied that the technical amendments do not confuse futures and physical forward contracts. The futures regime for other products falls outside the scope of the policy objective for these technical amendments.
13. One submitter requested that the definition of emissions units be extended to include other environmental products such as wetlands credits. This issue is expected to be raised at select committee. The Ministry of Agriculture and Forestry also asked whether there was potential to address other forms of environmental offsets. For example, in Lake Taupo there is a proposal for trading in nitrogen offsets. This falls outside the scope of the current policy objective.