Dated at Wellington this 25th day of September 2009.
The Common Seal of the Securities Commission was affixed in the presence of:
Statement of reasons
This notice, which comes into force on the day after the date of its notification in the Gazette, declares that certain products offered by IG Markets Limited (the products) are agreements to which Part 3 of the Securities Markets Act 1988 applies. The products are particular kinds of contracts for difference in respect of shares and other securities.
Part 3 of the Securities Markets Act 1988 is about futures contracts. The definition of
“futures contracts” includes agreements that the Securities Commission declares, under section 37(7) of that Act, to be agreements to which Part 3 applies. The declaration in this notice means that the products described in it are treated as futures contracts for the purposes of Part 3 of the Act.
The Securities Commission considers that it is appropriate to make the declaration for the following reasons:
the products are settled otherwise than by delivery, which is a key characteristic of commodity futures contracts under New Zealand law. This means that the parties' obligations under the contract can be met by some means other than physical delivery of the commodity that is the subject of the contract, in this case the shares or securities. The obligation that each party to the contract has is met, in practice, by payment of a settlement amount by one party to the other. This amount is the difference between the agreed price for the contract and the actual market price of that commodity on the date that the futures contract expires or is settled or is closed out:
the products are also synthetic in nature, because although the contract is valued by reference to a share or other securities, it does not confer any right on the buyer to ever receive the shares or securities. The value of the contract at any time is determined by the difference between the price of the underlying shares or securities when the contract was entered into and the actual price of the shares or securities at the time of valuation:
because the products are synthetic and settled otherwise than by delivery, the disclosure requirements (about IG Markets) under the Securities Act 1978 do not provide the best regulatory solution for the product:
the declaration provides certainty in the market because, although the products have the characteristics of a futures contract, there is doubt about whether under New Zealand law various derivative products (in particular those where the underlying asset is a company share or security) should be treated as securities (which are regulated under the Securities Act 1978) or as futures contracts (which are regulated under the Securities Markets Act 1988):
the declaration enables the products to be regulated in the same manner as futures contracts under New Zealand law.
Date of notification in Gazette: 1 October 2009.
This notice is administered by the Securities Commission.