NZX participant rule review would jettison overlap with FAA, FMA rules, increase surveillance

Monday 15th August 2016

NZX's review of market participant rules would trim out overlap with other rules and regulations while allowing the market operator to beef up its surveillance tools, according to a consultation paper that reflects feedback from stakeholders such as brokerages.

The paper is a follow-up to an initial NZX report on participant rules released last November and shows almost universal agreement for the NZX to narrow the focus of its rules to market conduct and step back from other areas such as financial advice, which is already regulated by the Financial Advisors Act (FAA) and the Code of Professional Conduct for Authorised Financial Advisers. The Ministry for Business, Innovation and Employment is currently reviewing the Act.

The drawback would extend to regulation of discretionary accounts known as DIMS, which are already regulated under the Financial Markets Conduct Act, anti-money laundering law and the FAA, and regulation of custody of client assets, which are already covered by the FAA and custodial regulations. Reducing overlap with red tape covering NZX market participants is no small task given that the participant rules run to some 220 pages.

Another area where rules may become more flexible is in requiring a brokerage to have an NZX advisor or associate advisor in full-time control of each broking office, even if they're just involved in 'back-office' functions. Instead, the firms would have the flexibility to appoint who they deem the best-qualified person for each office.

The consultation paper covers 15 topics, ranging from contract notes to international crossings, margin cover, capital adequacy and surveillance tools.

Surveillance tools would be enhanced in keeping with NZX's focus on market conduct, even though there was little support for such measures among submitters.

"NZX considers that this overlooks the point of these proposed changes, which seek to improve the information and tools available to enhance NZX's existing surveillance function," it said in the report.

"NZX’s surveillance function is important for the operation of fair, orderly and transparent markets and NZX has a joint responsibility along with the FMA to monitor and investigate potential market misconduct," it said. "NZX’s ability to monitor trading conduct relies on access to data."

Under the increased surveillance measures, NZX wants more disclosure of underlying common shareholder numbers (CSNs), the unique identifier that allows it to link particular trades with brokerage clients, disclosure of employee trades in the trading system, and a way to identify the dealers who execute the trades.

NZX also wants to have access to identifiers for wholesale trading, a move that would bring those requirements into line with the requirements for retail clients. All up it wants more reporting of real-time data into the trading system.

Submissions on the latest consultation paper are due by Sept. 23 and NZX hopes to have proposed rule amendments finalised after that, with the NZX likely to apply to the FMA for approval for the amendments in December and put them into effect in the first quarter of 2017.

BusinessDesk.co.nz

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