GENERAL: NZXR: Notice - NZX Participant Rule Amendment

25 Jun 2010 5:51 pm

NZXR 25/06/2010 GENERAL

REL: 1751 HRS NZX Regulation

GENERAL: NZXR: Notice - NZX Participant Rule Amendment

25 June 2010

NZX Market Supervision ("NZXMS") hereby gives notice of amendment to the NZX Participant Rules ("Rules").

The amendments relate to the introduction of NZX's new clearing and settlement system ("Settlement System") and will come into effect on the Go-Live Date.

As the Go-Live Date is dependant on the receipt of necessary regulatory approvals, NZX will advise the market of the Go-Live Date, provided that it shall not be earlier than 26 July 2010. All Trades resulting from the matching of orders in NZX's trading system that have not been settled prior to the Go-Live Date will be cleared and settled on the Clearing House pursuant to the Clearing and Settlement Rules ("C&S Rules") and the Depository Operating Rules ("DO Rules") and the amended Rules will apply to those Trades.

By implementing the Settlement System, NZX seeks to align New Zealand's clearing and settlement infrastructure with international best practise, in order to promote confidence and participation in New Zealand's capital markets. The Settlement System comprises a central counterparty clearing house ("Clearing House") (operated by New Zealand Clearing Limited) and a central securities depository ("Depository") (operated by New Zealand Depository Limited).

The amended Rules can be found at www.nzx.com/market-supervision/rules/. We have also provided two marked copies of the Rules. One shows the differences between the NZX Participant Rules as they are currently in force and draft Rules dated 12 April 2010, and the other shows the changes made since the 12 April 2010 draft Rules. We have also provided a marked version of the Procedures, marked against the 12 April 2010 version previously provided to Participants. As the Rules are subject to regulatory approval, including for the purpose of the Securities Markets Act 1988, any changes required to obtain regulatory approval will be made available prior to the Go Live Date.

The following amendments have been made to align the Rules relating to clearing and settlement with the proposed C&S Rules and DO Rules: 1. Delivery and Settlement Participants The provisions relating to Delivery and Settlement Participants have been removed from the Rules. These are replaced by provisions in the C&S Rules and/ or the DO Rules. The Rules require that all Trading Participants have in place arrangements for the clearing and settlement of all Trades and impose requirements for these arrangements.

2. Legal Title Transfer The Rules regarding the transfer of legal title to securities via the FASTER System have been amended to refer to the electronic transfer of securities via the Settlement System. Provisions relating to the transfer of legal title by electronic means are included in the DO Rules.

3. Client Assets The Rules relating to Client Assets have been amended to permit the use of the Depository for settlement.

Other amendments have also been made to the Rules: 1. Capital Adequacy The capital adequacy provisions have been amended to align with the capital adequacy requirements of the C&S Rules. These amendments also seek to account for the change and profile of market risk following the introduction of the Clearing House.

2. Fidelity Guarantee The requirement for NZX to operate a Fidelity Guarantee Fund has been removed.

3. Error Trades and Cancellation Amendments have been made to the arrangements for the reporting and cancellation of Error Trades.

4. Session States The Rules regarding session states have been amended to reflect the current operation of session states for NZX's securities markets.

5. General A number of minor amendments have been made to address typographical errors and omissions contained the existing versions of the Rules.

Further background information about the amendments can be found in the document entitled Consultation Memorandum - Participant Rules - August 2009, which is available at http://www.nzx.com/market-supervision/rules-consultation/. Please note that amendments proposed in that paper regarding bringing orders to market and crossings have not been included in these amendments.

ENDS. End CA:00196575 For:NZXR Type:GENERAL Time:2010-06-25:17:51:16

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