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Futures Dealers
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- SFE Participants
- NZX Futures & Options Participation
- Direct Authorisation by the Securities Commission
- Applicants
Authorisation of Futures Dealers in New Zealand
Under the Securities Markets Act 1988, no person shall carry on the business of dealing in futures contracts unless that person is, or is a member of a class of persons that is, authorised by the Securities Commission to carry on the business of dealing in futures contracts. On 30 April 2004 two significant class notices relating to futures dealers came into effect. Consequently, authorisation under these notices is available to:
- futures and options participants under the NZX Futures and Options Rules (The Authorised Futures Dealers Notice (No 3) 2004); and
- participants in the Sydney Futures Exchange (SFE) (The Authorised Futures Dealers Notice (No 2) 2004).
As the statutory regulator of futures dealers, the Securities Commission continues to authorise dealers on an individual basis who do not fall within the categories covered by these class authorisations.
Where a futures dealer handles client funds, this activity is regulated at law by the Futures Industry (Client Funds) Regulations 1990.
1. SFE Participants
This route to authorisation is available to existing (or entities that become) accredited participants of the SFE. The New Zealand authorisation is only effective in respect of futures contracts listed on the SFE itself. An SFE participant dealing in futures contracts in New Zealand other than those listed on the SFE (i.e. off-exchange futures contracts or futures contracts listed on any other futures exchange) will need to obtain one of the other two forms of authorisation.
2. NZX Futures & Options Participation
The authorisation of NZX's futures and options participants followed the approval by the Commission of the NZX Futures and Options Rules in March 2004. The Commission has welcomed NZX's involvement as frontline regulator of futures dealers who operate under the NZX Futures and Options Rules. NZX regulates the advice, order receipt and order placement of its futures and options participants.
NZX's role in the regulation of futures dealers involves the regulation of futures products that are derived from securities. Accordingly, the firms that are likely to fit within NZX's regulatory model are those that:
- are involved in receiving and passing orders in futures and options products to an exchange; or
- deal in futures and options products with similar characteristics to those traded on an exchange.
Primarily this excludes foreign exchange and related products. Accordingly, given the broad definition of "futures contract" in the Securities Markets Act 1988, there will be dealers whose business activities do not fit well within the design of the NZX Futures and Options Rules.
3. Direct Authorisation by the Securities Commission
All applicants for whom the above two routes for authorisation are not available or appropriate must seek direct authorisation from the Securities Commission.
NZX and the Securities Commission consider that NZX regulation is unlikely to be suitable when the dealer:
- acts as an issuer of derivative products;
- acts primarily as the market provider itself;
- trades solely in its capacity as a funds manager;
- trades exclusively or primarily in foreign exchange futures, and related products; or
- trades exclusively for wholesale clients.
The Commission is able to grant individual authorisations on such terms and conditions as are appropriate to the case.
Applicants
The Securities Commission and NZX recommend that entities wishing to deal in future contracts in New Zealand consider the issues above before deciding upon their most appropriate route to authorisation. At that point, they should notify the relevant regulatory organisation (SFE, NZX, or the Securities Commission) that they intend to apply and ask what is involved.
The regulatory organisation shall gather the information needed to satisfy itself that the applicant has approached the correct organisation. Generally, this will be possible without the need for a full application.
NZX and the Commission may discuss applications between themselves, if the business involves elements of dealing that could be covered by both regimes, to determine which regulatory organisation would be most appropriate. The aim is to find the most appropriate regulation for any dealer, and to avoid any duplication of regulation.
Should the regulatory organisation decide that the applicant has not sought the most appropriate route, it shall notify, in writing:
- the applicant; and
- any other organisation to whom the applicant has been referred.
Staff of NZX and the Commission are happy to meet potential applicants to assist them to best direct applications.