NZX clearinghouse passes regulatory milestone

Friday 3rd September 2010

NZX's new clearing and settlement system has passed a crucial regulatory milestone ahead of going live this month, gaining "designated" status by the Reserve Bank of New Zealand and Securities Commission today.

The NZCDC Settlement System is operated by New Zealand Clearing and Depository Corporation, a wholly-owned subsidiary of NZX Limited, and is integral to NZX's plans to launch dairy, energy and other derivative products in coming months.

Discussions between the Reserve Bank and NZX on the potential for a settlement system joint venture were "ongoing", but were kept deliberately separate from the designation process, said Head of Prudential Supervision Toby Fiennes.

NZX disclosed in its profit announcement last month that it had set aside $10 million of risk capital and a promise of another $5 million if needed, as well as an operating float of $2 million for the clearinghouse.

Designation gives a statutory guarantee that, once transacted through the settlement system, a financial transaction is final and cannot be unwound in the event of failure by a participant in the system. Designated settlement systems are subject to ongoing oversight by the Securities Commission and the RBNZ.

While it is not compulsory for settlement systems operating in New Zealand to be designated, a settlement system will only be awarded designation after regulators assess the clarity and legal certainty of the system's rules, its financial soundness and risk management policies, and the capability and capacity of the operator.

There are two other designated settlement systems: the Reserve Bank's Exchange Settlement Account System and the Continuous Linked Settlement System operated by CLS Bank International. Shares of NZX rose 0.7% to $1.40 today.

Businesswire.co.nz

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