GENERAL: NZXR: Notice of Amendment to NZX Participant Rules

6 Aug 2010 6:00 pm

NZXR 06/08/2010 GENERAL

REL: 1800 HRS NZX Regulation

GENERAL: NZXR: Notice of Amendment to NZX Participant Rules

?6 August 2010

NZX Market Supervision ("NZXMS") hereby gives notice of amendment to the NZX Participant Rules ("Rules") pursuant to Rule 1.4 of the Rules. This notice replaces the previous notice dated 25 June 2010.

The amendments relate to the introduction of NZX's new clearing and settlement system ("Settlement System").

These amendments will come into effect on the date NZX notifies to the market on which the Settlement System will become operative (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 20 Business Days after the date of this notice. 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 practice. This is intended 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 are dated 6 August 2010 and in a form agreed with the Securities Commission and as submitted to the Minister of Commerce under Section 36J of the Securities Markets Act 1988. The Rules can be found at www.nzx.com/market-supervision/rules/. We have also provided one marked copy of the Rules, which shows the differences between the amended Rules and the draft NZX Participant Rules provided with the notice dated 25 June 2010. We have also provided final Procedures, marked against the version provided to Participants with the 25 June 2010 notice.

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 Legal Title Transfer 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.

4. Capital Adequacy The capital adequacy provisions have been amended to align with the capital adequacy requirements of the C&S Rules. The minimum capital requirements will be increased under the amended Rules. The amendments also seek to account for the change and profile of market risk following the introduction of the Clearing House. All Market Participants Requiring Capital must comply with the new capital adequacy requirements. However, those Market Participants Requiring Capital who will not be Clearing Participants on Go- Live will have a further three months after Go-Live before they will be required to comply with the increased requirements. NZMS will grant a class waiver for these Participants.

Other amendments have also been made to the Rules:

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

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

3. General A number of minor amendments have been made to address typographical errors and omissions contained the existing versions of the Rules. We note that given the need to confine amendments to clearing and settlement, a number of amendments that were proposed in the 25 June 2010 Rules are no longer being made, such as changes that were proposed to Rule 16.9 relating to Market Makers, Rule 8.10 relating to the Fidelity Guarantee Fund and Rule 8.3 relating to Comments to the Media.

Further 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 all of the comparison documents provided to assist with understanding the changes to the Rules are intended as a guide only. Participants must refer to the 6 August 2010 Rules to determine their obligations under the Rules as amended.

ENDS. End CA:00198116 For:NZXR Type:GENERAL Time:2010-08-06:18:00:16

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