Proposal to Declare Certain Derivative Contracts to be Futures Contracts Under the Securities Markets Act 1988

A Discussion Paper

APPENDIX

Securities Markets Act - Definition of Futures Contract

Section 37(1) of the Securities Markets Act defines the term "futures contract", as follows:

"futures contract" means-

1. an agreement under which one party agrees to deliver to another party at a specified future time a specified commodity or a quantity of a specified commodity at a price which is fixed when the agreement is made but under which it is contemplated or understood that the obligations of the parties may be satisfied by means other than actual delivery:
2. an agreement under which each party has either:
   1. an obligation to pay a sum of money to the other or to credit the account of the other with payment of a sum of money; or
   2. a right to receive payment, or a credit, of a sum of money from the other,
   depending on whether at a future date the value or price of a specified commodity calculated in a manner specified by, or in accordance with, the agreement is greater or less than the value or price agreed upon by the parties when the agreement was made:
3. an agreement under which each party has either:
   1. an obligation to pay a sum of money to the other or to credit the account of the other with payment of a sum of money; or
   2. a right to receive payment, or a credit, of a sum of money from the other,
   depending on whether at a future date the value or level of a specified index calculated in a manner specified by, or in accordance with, the agreement is greater or less than the value or level agreed upon by the parties when the agreement was made:
4. an option or right to assume, at a specified price or value, or within a specified period, or by a specified date, rights and obligations under an agreement of a kind described in a preceding paragraph:
5. an agreement, option or right which is declared by the Commission, in accordance with this section, to be an agreement, option or right to which this Part of this Act applies:
6. an agreement, option or right which is of a class of agreements, options or rights declared by the Commission, in accordance with this section, to be a class to which this Part of this Act applies.

This definition applies to contracts whether they are traded on an exchange or not.

Certain agreements or contracts are excluded from this definition by section 37(2) of the Securities Markets Act. These are:

1. a currency swap agreement to which a registered bank is a party:
2. an interest rate swap agreement to which a registered bank is a party:
3. a forward exchange rate agreement to which a registered bank is a party:
4. a forward interest rate agreement to which a registered bank is a party.

An agreement or option that is described in the definition of "futures contract" is a futures contract whether or not it:

1. has any other effect; or
2. contains any other provisions; or
3. is capable of being varied or discharged before the time fixed for performance.