Discussion paper on derivative futures contracts
The Commission has released a discussion paper proposing to declare certain derivative contracts, known as contracts for difference, to be futures contracts under the Securities Markets Act.
A contract for difference (CFD) is a derivative contract in which an investor can receive the economic benefits of holding an underlying asset without actually having ownership of that asset. The price of the CFD is derived from the underlying asset and the parties to the contract agree to settle the difference between the acquisition and disposal price in cash. Therefore, there is no delivery of the underlying asset.
The Commission is making this proposal to resolve doubt in the market about how the law should deal with contracts for difference in respect of shares and other securities.
The effect of the Commission’s proposed declaration would be that people dealing in these contracts would need to be authorised as futures dealers under the Securities Markets Act. A copy of our paper will be available on our website, or in hard copy from the Commission.
Consultation on authorisation of futures dealers
The Commission released a discussion paper in 2006 regarding its proposal to declare certain foreign exchange contracts, known as margined foreign exchange contracts, or "rolling spots", to be futures contracts under the Securities Markets Act. The Commission considered the submissions received on that discussion paper and decided to make the declaration proposed in the paper.
As a result of the planned declaration, people dealing in margined foreign exchange contracts will need to obtain authorisation to deal in futures contracts under the Securities Markets Act. For this reason, before the Commission settles the declaration we are preparing further guidance on how to apply for a futures dealer’s authorisation from the Commission. As part of this guidance the Commission decided to revisit its
policy regarding capital adequacy requirements for futures dealers.
The Commission shortly intends to release for consultation a draft policy statement that provides guidance on applying for a futures dealer’s authorisation and includes proposed capital adequacy requirements.
A copy of our draft policy statement will be available on our website, or in hard copy from the Commission.
Review of trading in Wool Equities
The Commission has completed a review of trading in the shares of Wool Equities Limited. This matter was referred to the Commission by NZX on 22 November 2006, following a complaint by some shareholders.
The review related to allegations of insider trading against the former Chairman, Mr Richard Bentley, and the former Chief Executive Officer, Mr Mark O’Grady.
The Commission will not be taking any further action in this matter.
The Commission notes the cooperation of Wool Equities Limited, Mr Bentley and Mr O’Grady during its review.
Financial reporting Cycle 4 Review
The Commission 4th cycle review of financial reporting by issuers is nearing completion.
This cycle covers 40 issuers with balance dates from 30 June 2005 to 31 March 2006.
Nine of the issuers reviewed were early adopters of New Zealand Equivalents to International Financial Reporting Standards.
Cycle 4 is part of the Commission’s ongoing financial reporting surveillance programme to review and report on the financial reporting practices of issuers. The aim is to encourage improved quality of financial reporting.
"Cycle 4 is also part of the Commission’s plan to review disclosures and adjustments made by issuers as they move to NZ IFRS," Chief Accountant Alastair Boult said.
"The Cycle 4 report will include details of recurring and common non-disclosures by many of the companies applying NZ IFRS. This will provide some guidance for other issuers as they make the transition to NZ IFRS."
THE BULLETIN APRIL 2007