• About
• Publications
• Exemptions
• Notices
• What's new?
• International
• Speeches
• Information for investors
• Contact us
• Site map
• Home

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

7.

OTHER OPTIONS FOR CLARIFICATION

 

Law reform

7.1

We would be interested to hear other suggestions about the best way to clarify aspects of the futures regime and, in particular, the regulation of foreign exchange dealing.

7.2

The Government is reviewing the law regarding financial products and providers. As part of this review it will, we understand, be examining the appropriate treatment of derivative products. It is unlikely that any legislative changes from this review will occur before 2008. This paper raises issues that we consider might be usefully clarified in the interim.

7.3

We query whether industry participants consider it would be preferable for the questions raised in this paper to be dealt with in that review, rather than by the Commission and, if so, why.

7.4

We recognise that the Commission's declaration power is limited. Any necessary law reform will be a matter for the Government to consider, rather than the Commission.

8.

SUMMARY / TIMING

8.1

The Commission has received requests from market participants for clarification of whether rolling spot foreign exchange transactions are "futures contracts" under the Securities Markets Act.

8.2

The Commission appreciates that regulation of derivatives will be considered by the Government as part of its review of securities laws. However, the Commission believes it is necessary to clarify the situation in the interim.

8.3

The Commission proposes to use its power under the Securities Markets Act to declare rolling spot foreign exchange transactions to be future contracts.

8.4

The effect of the Commission's proposed declaration will mean that people dealing in these products will be required to obtain authorisation to deal in futures contracts under the Securities Markets Act.

8.5

In the event that any declaration is made, the Commission intends there to be an appropriate lead-in period.

8.6

We welcome submissions from all participants in the futures industry on whether it would be effective and appropriate to clarify the application of the Securities Markets Act by way of the Commission making a declaration. We would also be interested in comments on the proposed approach for any such declaration, if this is considered to be an appropriate step for the Commission to take.

8.7

The Commission welcomes comments from interested parties on the following:

• The Commission's view that a rolling spot foreign exchange transaction shares sufficient similarities with a futures contract so that it should be regulated under the Securities Markets Act, despite the form of the contract being intra-day.
• The Commission's proposal to clarify the application of the Securities Markets Act by using its declaration power to declare that rolling spot foreign exchange transactions are futures contracts.
• The Commission's proposal to adopt for any declaration wording that would include as a futures contract any agreement, contract or transaction in foreign currency that is offered, or entered into, on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis; but would not include:
  • a security that is not a security futures product; or
  • a contract of sale that:
    • results in actual delivery within two days; or
    • creates an enforceable obligation to deliver between a seller and a buyer who have the ability to deliver and accept delivery, respectively, in connection with their line of business.
• The effect that the Commission's proposed declaration would have on industry participants.
• Whether there is another approach to a declaration that we have not mentioned?
• Whether there are other derivative products that have caused uncertainty in respect of their regulatory treatment under New Zealand law?
• Whether there are any other ways that the regulation of rolling spot foreign exchange transactions could be clarified?
• Whether clarification of the application of the Securities Markets Act would be better suited to be undertaken by the Government as part of its current law reform programme? In this regard, would it be useful to extend the Commission's declaration power to being able to declare that agreements are not futures contracts, and that acts or conduct do not constitute dealing in a futures contract?
• What would be an appropriate lead-in period for any dealers who would need to obtain authorisation as the result of the Commission's proposed declaration?
• If you are involved in futures dealing in New Zealand, it would be helpful to us if you would provide details of:
  • the nature of your futures dealing;
  • the scale of your futures dealing; and
  • what authorisation regime (if any) you are currently operating under.

8.8

We also welcome comments on any other relevant issues relating to the futures regime under the Securities Markets Act. Comments should be sent to the Commission by 5pm Friday 2 June 2006.

Postal: Securities Commission
Email: meredith.pearson@seccom.govt.nz
PO Box 1179
WELLINGTON
Attn: Meredith Pearson

Facsimile: (04) 472 8076