Cabinet Paper on the Policy Review of New Zealand's Approach to Clearing and Settlement

"The Cabinet paper is a report back to EGI on recommendations arising from a policy review of New Zealand’s approach to clearing and settlement (CAB Min (08) 30/10).  In August 2008, Cabinet approved the introduction of the Settlement Systems, Futures, and Emissions Units Bill to Parliament (CAB Min (08) 30/10).  Consultation on an exposure draft of the Bill revealed significant concerns about the provision of settlement services and how these systems are expected to develop in future.  Cabinet invited the Minister of Commerce to review broader issues around New Zealand's approach to the clearing and settlement of securities (CAB Min (08) 30/10).  This review only considered issues that fall outside the scope of the Bill.  The terms of reference for the policy review of New Zealand’s approach to clearing and settlement were to:

1. consider whether competition or existing competition regulation provides adequate protection for participants and users of securities clearing and settlement services;
2. seek to provide an environment in which stakeholders can explore: the desirability of efficient interoperability between services; and potential models for the efficient delivery of those services to meet New Zealand's infrastructure needs in the longer term; and
3. identify potential models of stakeholder involvement in the provision of securities clearing and settlement services (consistent with relevant international standards) to ensure that providers continue to be responsive to the needs of the users of those services.

The key conclusions in the paper were:

• New Zealand is not alone in facing policy decisions about the development of its institutional arrangements for settlement services.  As part of this policy review, officials considered potential models of clearing and settlement, including research into the European Single Economic Market and the framework in Australia.  A targeted group of industry participants were consulted and their concerns about New Zealand’s approach to clearing and settlement were taken into account in this document.  The majority of stakeholder comment focussed on the existence of two settlement systems, Austraclear and FASTER, and NZX’s move to a central counterparty.
• There are advantages and disadvantages to any configuration of the market for settlement services; any choice involves trade-offs between costs, innovation, and stability.  The government has several roles regarding clearing and settlement, including both regulator and provider.  Market participants should determine arrangements for clearing and settlement within the regulatory framework protecting the national interest.  The review concludes that there is currently no general case for the government to institute new measures within the context of New Zealand’s current clearing and settlement services.  Market developments can be dealt with by existing competition law and other statutory processes should a need arise. "

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