A Discussion Paper
1. EXECUTIVE SUMMARY
- 1.1
- The proposals set out in this discussion paper are likely to affect people who are dealing in certain derivative contracts. The discussion paper is also likely to be of interest to securities lawyers.
- 1.2
- The Commission has received requests from market participants for clarification of whether certain types of financial instruments are "futures contracts" as defined in the Securities Markets Act 1988 (the "Securities Markets Act"). These requests are in respect of instruments known as contracts for difference.
- 1.3
- There appears to be real doubt within the futures industry in New Zealand regarding the application of the definition of "futures contract" to contracts for difference in respect of shares or other securities1.
- 1.4
- The Commission believes it is necessary to clarify this situation. It is important for there to be certainty in the futures industry as to what constitutes a futures contract for the purposes of the Securities Markets Act.
- 1.5
- The Commission proposes to use its specific power under the Securities Markets Act to declare contracts for difference in respect of shares or other securities to be futures contracts.
- 1.6
- The effect of such a declaration will mean that people dealing in these contracts will need to be authorised to deal in futures contracts under the Securities Markets Act.
- 1.7
- It is important to note that the Commission is not undertaking a general reform of futures regulation in New Zealand. Such an exercise is being undertaken by the Ministry of Economic Development as part of its review of Financial Products and Providers. This paper relates to a very specific part of the futures market about which a number of participants have expressed uncertainty.
- 1.8
- The Commission is seeking comments on this proposal. Comments should be sent to the Commission by 5.00p.m on Friday 4 May 2007.
Footnotes