Futures Contracts (Velocity Trade Limited Agreements) Notice 2011

2011/108

Coat of Arms of New Zealand

Futures Contracts (Velocity Trade Limited Agreements) Notice 2011

Pursuant to section 37(7) of the Securities Markets Act 1988, the Securities Commission gives the following notice (to which is appended a statement of reasons of the Securities Commission).

Notice

1  Title

  • This notice is the Futures Contracts (Velocity Trade Limited Agreements) Notice 2011.

2  Commencement

  • This notice comes into force on the day after the date of its notification in the Gazette.

3  Interpretation

  • (1) In this notice, unless the context otherwise requires,—

    authorised futures dealers notice means the Authorised Futures Dealers (Velocity Trade Limited) Notice 2011 that is made under section 38 of the Act and published in the Gazette

    specified product means a contract for difference—

    • (a) in respect of shares, other securities, or a basket of shares or other securities, that is offered by Velocity Trade under a product disclosure statement that complies with the authorised futures dealers notice; and

    • (b) to which Velocity Trade is a party; and

    • (c) under the terms of which it is contemplated or understood that the obligations of the parties may be satisfied other than by actual delivery of underlying securities; and

    • (d) that is offered to persons in New Zealand by Velocity Trade under the terms of the contract for difference and in accordance with the terms of the authorised futures dealers notice

    Velocity Trade means Velocity Trade Limited.

    (2) Any term or expression that is defined in the Act and used, but not defined, in this notice has the same meaning as in the Act.

4  Application of Part 3 of Act to specified products

  • Every specified product is declared to be an agreement to which Part 3 of the Act applies.

Dated at Wellington this 19th day of April 2011.

The Common Seal of the Securities Commission was affixed in the presence of:

[Seal]

N O Todd,
Member.

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 Velocity Trade Limited 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 Securities Commission considers that it is appropriate to make the declaration for the following reasons:

  • the particular contracts for difference in respect of shares and other securities (the products) dealt with in the notice are settled otherwise than by delivery, which is a key characteristic of commodity futures contracts under New Zealand law. This means that the contract provides for the obligation of each party to the contract to be met by some means other than by physical delivery of the commodity that is the subject of the contract, in this case the shares or securities. Each party's obligation, in practice, is met either by payment or receipt of a settlement amount. 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:

  • the products are also synthetic in nature because, although the contract is valued by reference to a share or other security, 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 share or security when the contract was entered into and the actual price of the share or security at the time of valuation:

  • because the products are synthetic and settled otherwise than by delivery, the disclosure requirements (about Velocity Trade Limited) in terms of the Securities Act 1978 do not provide the best regulatory solution for the products:

  • the declaration provides certainty in the market as, 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, and so regulated under the Securities Act 1978, or as futures contracts, and so 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.

Issued under the authority of the Acts and Regulations Publication Act 1989.

Date of notification in Gazette: 21 April 2011.

This notice is administered by the Securities Commission.