Financial Markets Conduct (Derivatives Issuers—Responsibilities in Event of Shortfall) Exemption Notice 2015

  • revoked
  • Financial Markets Conduct (Derivatives Issuers—Responsibilities in Event of Shortfall) Exemption Notice 2015: revoked, on 1 December 2015, by clause 3.

Reprint as at 1 December 2015

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Financial Markets Conduct (Derivatives Issuers—Responsibilities in Event of Shortfall) Exemption Notice 2015

(LI 2015/120)

Financial Markets Conduct (Derivatives Issuers—Responsibilities in Event of Shortfall) Exemption Notice 2015: revoked, on 1 December 2015, by clause 3.

Note

Changes authorised by subpart 2 of Part 2 of the Legislation Act 2012 have been made in this official reprint.

Note 4 at the end of this reprint provides a list of the amendments incorporated.

This notice is administered by the Financial Markets Authority.

Pursuant to section 556 of the Financial Markets Conduct Act 2013, the Financial Markets Authority, being satisfied of the matters set out in section 557 of that Act, gives the following notice.

Notice

1 Title

This notice is the Financial Markets Conduct (Derivatives Issuers—Responsibilities in Event of Shortfall) Exemption Notice 2015.

2 Commencement

This notice comes into force on 1 June 2015.

3 Revocation

This notice is revoked on the close of 30 November 2015.

4 Interpretation

(1)

In this notice, unless the context otherwise requires,—

(2)

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

5 Exemption

Every derivatives issuer is exempted from regulation 244 of the Regulations.

6 Conditions

(1)

The exemption in clause 5 is subject to the conditions that—

(a)

the derivatives issuer must, at least daily, reconcile its records of the amount of money that is required to be in its trust account (the required amount) with the amount of money in the trust account; and

(b)

if, on any day, the required amount exceeds the amount of money in the trust account, the derivatives issuer must—

(i)

immediately deposit in the trust account an amount of money equal to the amount of the shortfall; and

(ii)

treat the amount deposited as if it were derivatives investor money that has been deposited under regulation 244 of the Regulations; and

(c)

the derivatives issuer must not deposit its own funds into the trust account in excess of what it considers reasonable to cover the risk of a shortfall arising at any time (and the derivatives issuer must treat each amount deposited as if it were derivatives investor money that had been deposited under regulation 244 of the Regulations); and

(d)

if the derivatives issuer has deposited money in the trust account under paragraph (b) or (c), and the amount of money in the trust account subsequently exceeds the required amount, the derivatives issuer must not withdraw from the account an amount that exceeds the excess (and the derivatives issuer must treat such a withdrawal as a withdrawal under regulation 244(4) of the Regulations); and

(e)

the derivatives issuer must take reasonable steps to ensure that the amount of money in the trust account does not exceed the required amount by more than what is reasonable to cover the risk of a shortfall; and

(f)

the derivatives issuer must provide the FMA with a written acknowledgement from the derivatives issuer’s bank that it is on notice that all money in the derivatives issuer’s trust account is, or is treated as, derivatives investor money for the purposes of the Regulations.

(2)

In this clause, a shortfall is a difference between the required amount and the amount of money in the trust account.

Dated at Wellington this 22nd day of May 2015.

Liam Mason,
General Counsel.

Statement of reasons

This notice, which comes into force on 1 June 2015 and is revoked on 30 November 2015, exempts derivatives issuers from regulation 244 of the Financial Markets Conduct Regulations 2014 (the Regulations). Regulation 244 relates to the responsibilities of a derivatives issuer in the event of a shortfall of the amount of money that should be in the trust account maintained for the purpose of holding derivatives investor money on trust.

The Financial Markets Authority (the FMA), after satisfying itself as to the matters set out in section 557 of the Financial Markets Conduct Act 2013 (the Act), considers it appropriate to grant the exemption because—

  • the Regulations require a derivatives issuer to reconcile its records of the amount of derivatives investor money with the amount of money in its trust account using a cash-based approach. Where a shortfall of funds is calculated, the derivatives issuer must top up the trust account. The FMA is aware that this type of reconciliation may not be appropriate for some types of derivatives-related activity; and

  • authorised futures dealers that were dealers immediately before 1 December 2014 may continue to comply with the Futures Industry (Client Funds) Regulations 1990 until 1 December 2015. They are not required to reconcile their trust accounts using a cash-based approach. The exemption provides all derivatives issuers with a temporary alternative method of reconciliation and compliance with the Regulations until 1 December 2015; and

  • the FMA understands that the Government is considering an amendment to the Regulations to provide for alternative methods of reconciliation for derivatives issuers. The exemption provides flexibility to derivative issuers in relation to the derivatives investor money reconciliation requirements in the Regulations until the Government has determined whether additional regulations are required to deal with these matters. As such, the FMA is satisfied that the granting of the exemption is desirable in order to promote one of the purposes of the Act, which is that it will enable derivatives issuers to avoid unnecessary compliance costs; and

  • the conditions replicate the requirements of regulation 244 and require a derivatives issuer to reconcile its trust account and, if the amount required to be in the trust account exceeds the amount of money in the trust account, the derivatives issuer must deposit an amount equal to the shortfall. The conditions also require a derivatives issuer to provide the FMA with written acknowledgement from the derivatives issuer’s bank that it is on notice that all money in the trust account is, or is being treated as, derivatives investor money for the purposes of the Regulations. As such, the FMA is satisfied that the exemption is not broader than is reasonably necessary to address the matters that gave rise to it.

Issued under the authority of the Legislation Act 2012.

Date of notification in Gazette: 28 May 2015.

Reprints notes
1 General

This is a reprint of the Financial Markets Conduct (Derivatives Issuers—Responsibilities in Event of Shortfall) Exemption Notice 2015 that incorporates all the amendments to that notice as at the date of the last amendment to it.

2 Legal status

Reprints are presumed to correctly state, as at the date of the reprint, the law enacted by the principal enactment and by any amendments to that enactment. Section 18 of the Legislation Act 2012 provides that this reprint, published in electronic form, has the status of an official version under section 17 of that Act. A printed version of the reprint produced directly from this official electronic version also has official status.

3 Editorial and format changes

Editorial and format changes to reprints are made using the powers under sections 24 to 26 of the Legislation Act 2012. See also http://www.pco.parliament.govt.nz/editorial-conventions/.

4 Amendments incorporated in this reprint

Financial Markets Conduct (Derivatives Issuers—Responsibilities in Event of Shortfall) Exemption Notice 2015 (LI 2015/120): clause 3