This notice is made under the Financial Markets Conduct Act 2013 (the FMC Act) and comes into force on 31 October 2020.

The Financial Markets Conduct (US Futures Commission Merchants) Exemption Notice 2015 currently exempts certain US participants in NZX Limited’s derivatives market from various provisions of the Financial Markets Conduct Regulations 2014 (the FMC Regulations). That notice will be revoked on 30 October 2020. This notice continues those exemptions with no material changes. This notice will in turn be revoked on the close of 30 March 2021.

The exemption covers derivatives participants that are registered with the Commodity Futures Trading Commission (the CFTC) as futures commission merchants and are participants in NZX Limited’s derivatives market (US derivatives participants). They are exempted from regulations 238 to 250 of the FMC regulations, which impose various requirements relating to the holding of derivatives investor money and derivatives investor property. The exemption applies only to derivatives contracts that US derivatives participants are authorised to trade as NZX derivatives participants, being those derivatives contracts that are subject to NZX Limited’s registration as a Foreign Board of Trade under the Commodity Exchange Act of 1936 of the United States of America. Currently, this is the dairy derivatives contracts.

The conditions of the exemption instead require US derivatives participants to hold derivatives investor money and derivatives investor property in accordance with applicable US requirements.

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

• US futures commission merchants are subject to regulation by the CFTC. This exemption will allow US derivatives participants that are authorised NZX derivatives market participants to carry on business with New Zealand investors and trade on the NZX derivatives market under the same rules as apply in respect of dealings with US investors; and

• the US regulatory requirements, together with the conditions in the notice, are broadly equivalent to those under the FMC Regulations and provide adequate protection for New Zealand investors’ derivatives investor money and property; and

• by requiring US derivatives participants to hold New Zealand investors’ derivatives investor money and property in a separate account at all times in accordance with the US requirements, and by restricting the way New Zealand investors’ derivatives investor money and property can be invested by US derivatives participants, the conditions of the exemption provide adequate alternative safeguards for the protection of derivatives investor money and property. Given the substantial similarities between the FMC Regulations requirements, the US requirements, and the conditions in this notice, the exemption is not broader than is reasonably necessary to address the matters to which it relates; and

• the exemption is desirable in order to promote several of the purposes of the FMC Act, specifically, by promoting and facilitating the development of fair, efficient, and transparent financial markets and innovation and flexibility in the financial markets, and by avoiding unnecessary compliance costs.