Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill

  • enacted
5 New sections 122A to 122D inserted

After section 122, insert:

122A Definitions of terms relating to qualifying derivatives

(1)

For the purposes of sections 122(9A), 122AB, 122B, 122C, and 122D,—

collateral means any 1 or more of the following:

(a)

a financial product:

(b)

gold, silver, or platinum:

(c)

a document of title, a chattel paper, an investment security, money, a negotiable instrument, or an intangible (with terms and expressions used in this paragraph having the same meanings as in section 16(1) of the Personal Property Securities Act 1999):

(d)

if a person (an intermediary) maintains an account to which interests in property, or rights to payment or delivery of property, of a kind specified in any of paragraphs (a) to (c) may be credited or debited, the rights of a person in whose name the intermediary maintains the account, to the extent that those rights relate to the interests in that property or the rights to payment or delivery of that property:

(e)

the proceeds of property of a kind specified in any of paragraphs (a) to (d)

default time means the close of the day after the date on which the statutory management commenced

derivative means a derivative within the meaning of section 8(4) of the Financial Markets Conduct Act 2013 (but disregarding any declaration referred to in section 8(5)(b) of that Act)

intermediated collateral means collateral of the kind referred to in paragraph (d) of the definition of collateral in this subsection

overseas person means—

(a)

a natural person who is not ordinarily resident in New Zealand; or

(b)

an entity (within the meaning of section 6(1) of the Financial Markets Conduct Act 2013) that is incorporated or established outside New Zealand

possession includes possession within the meaning of section 18 of the Personal Property Securities Act 1999 (subject to section 122AB and regulations made under section 173(1)(fc) and (fd))

proceeds has the same meaning as in section 16(1) of the Personal Property Securities Act 1999 but applied with all necessary modifications, including treating references to collateral in the definition in that section as references to property of a kind specified in any of paragraphs (a) to (d) of the definition of collateral in this subsection

qualifying counterparty means—

(a)

a registered bank; or

(b)

the Accident Compensation Corporation (as continued by section 259 of the Accident Compensation Act 2001); or

(c)

the Guardians of New Zealand Superannuation established under section 48 of the New Zealand Superannuation and Retirement Income Act 2001; or

(d)

a specified operator; or

(e)

any prescribed entity; or

(f)

any other entity of a prescribed class

qualifying derivative, in relation to enforcing a security interest over collateral, means a derivative to which both of the following apply:

(a)

the derivative is subject to—

(i)

a netting agreement to which sections 310A to 310O of the Companies Act 1993 or sections 255 to 263 of the Insolvency Act 2006 apply; or

(ii)

netting under the rules of a designated settlement system; and

(c)

the enforcing counterparty’s interest in the collateral is evidenced in writing

security interest has the same meaning as in section 17 of the Personal Property Securities Act 1999

specified time means—

(a)

the default time; or

(b)

an earlier or a later time specified by the Bank in a notice issued under section 122B.

(2)

For the purposes of the definition of overseas person, a natural person is ordinarily resident in New Zealand if that person—

(a)

is domiciled in New Zealand; or

(b)

is living in New Zealand and the place where that person usually lives, and has been living for the immediately preceding 12 months, is in New Zealand, whether or not that person has on occasions been away from New Zealand during that 12-month period.

122AB Matters relating to possession or control of collateral

(1)

For the purposes of section 122(9A)(ab),—

(a)

collateral must be taken not to be in the possession or under the control of the enforcing counterparty if,—

(i)

under the security interest, the grantor is free to deal with the collateral in the ordinary course of business until the enforcing counterparty’s interest in the collateral becomes fixed and enforceable; or

(ii)

regulations made under section 173(1)(fc) so provide:

(b)

intermediated collateral must be taken to be in the possession of the enforcing counterparty if that counterparty is the person in whose name the intermediary maintains the account:

(c)

intermediated collateral must be taken to be under the control of the enforcing counterparty if subsection (3) applies:

(d)

collateral must be taken to be in the possession or under the control of the enforcing counterparty if regulations made under section 173(1)(fc) so provide.

(2)

Subsection (1)(a)(i) applies even if the enforcing counterparty’s interest in the collateral becomes fixed and enforceable before the enforcement of the security interest over that collateral.

(3)

For the purposes of subsection (1)(c), this subsection applies if—

(a)

the intermediary is not the grantor (but may be the enforcing counterparty or any other person); and

(b)

there is an agreement in force between the intermediary and 1 or more other persons, 1 of which is the enforcing counterparty or the grantor; and

(c)

the agreement has 1 or more of the following effects:

(i)

the person in whose name the intermediary maintains the account is not able to transfer or otherwise deal with the collateral:

(ii)

the intermediary must not comply with instructions given by the grantor in relation to the collateral without seeking the consent of the enforcing counterparty (or a person who has agreed to act on the instructions of the enforcing counterparty):

(iii)

the intermediary must comply, or must comply in 1 or more specified circumstances, with instructions (including instructions to debit the account) given by the enforcing counterparty in relation to the collateral without seeking the consent of the grantor (or any person who has agreed to act on the instructions of the grantor).

(4)

Subsections (1)(a)(i), (b), and (c), (2), and (3) and the definition of possession in section 122A(1) are subject to regulations made under section 173(1)(fc) and (fd).

(5)

The fact that a grantor retains a right of 1 or more of the following kinds does not by itself stop section 122(9A)(ab) from being satisfied:

(a)

a right to receive and withdraw income in relation to the collateral:

(b)

a right to receive notices in relation to the collateral:

(c)

a right to vote in relation to the collateral:

(d)

a right to substitute other collateral that the parties agree is of equivalent value for the collateral:

(e)

a right to withdraw excess collateral:

(f)

a right to determine the value of collateral.

122B Bank may reduce or extend stay on exercise of rights to enforce security interest over collateral

(1)

This section and section 122C apply for the purposes of section 122(9A) in respect of a registered bank that is in statutory management (A).

(2)

The Reserve Bank may, before the default time, issue a notice that states that the rights referred to in section 122(9A) may only be exercised on and after a time specified in the notice.

(3)

The time that is specified may be—

(a)

before the default time; or

(b)

after the default time if the Bank is satisfied of all of the matters set out in section 122C.

(4)

The notice may relate to all rights referred to in section 122(9A) in respect of A’s property or to a class or classes of those rights.

(5)

Despite section 140(2)(b), this section applies to an associated person or a subsidiary of a registered bank only if the associated person or subsidiary is itself a registered bank.

122C Matters Bank must be satisfied of under section 122B(3)(b)

The matters referred to in section 122B(3)(b) are that—

(a)

A is able to meet all of the following liabilities as and when those liabilities become due and payable:

(i)

A’s liabilities under all netting agreements to which sections 310A to 310O of the Companies Act 1993 or sections 255 to 263 of the Insolvency Act 2006 apply:

(ii)

A’s liabilities in respect of security interests over collateral to the extent that the security interests secure payment or performance of obligations under or in relation to qualifying derivatives:

(iii)

A’s liabilities that are subject to netting under the rules of a designated settlement system; and

(b)

A is able to pay its debts as they become due in the normal course of business; and

(c)

either—

(i)

A complies with the minimum capital requirements (if any) to which it is subject under conditions imposed under section 74; or

(ii)

there are satisfactory arrangements in place to ensure that A meets all of its liabilities referred to in paragraph (a) as and when those liabilities become due and payable and those arrangements will remain in place until A complies with the requirements referred to in subparagraph (i) or the statutory management is terminated, whichever occurs first.

122D Publication and status of notice under section 122B

(1)

The Bank must, as soon as practicable,—

(a)

publish any notice issued under section 122B on an Internet site maintained by, or on behalf of, the Bank; and

(b)

notify the issue of the notice in the Gazette.

(2)

The notice may take effect at any time after it is published under subsection (1)(a).

(3)

The notice is neither a legislative instrument nor a disallowable instrument for the purposes of the Legislation Act 2012 and does not have to be presented to the House of Representatives under section 41 of that Act.

(4)

The notice cannot be varied or revoked.