Anyone operating a financial product market needs to be licenced unless the market is exempt. A financial product market is a facility where financial products are bought or sold, or where offers or invitations to buy or sell financial products are made.
See s309 of the FMC Act (Act) for the definition of what is, and what is not, considered a facility, and s312 for more on exemptions from the licensing requirements.
Who issues a licence
The Minister of Commerce and Consumer Affairs issues financial product market licences, with advice from us. The Minister and the FMA must consider the following before issuing a licence to a financial product market operator:
- the nature of the activities proposed
- the market’s proposed size
- the nature of the financial products dealt with
- the likely participants (either directly or by using the services of participants) and
- the technology used in operating the market.
The Minister must also be satisfied that an applicant will be able to meet the general obligations of licensed market operators, found in s314 of the Act, and is a body corporate registered on the FSPR.
A market operator must not operate markets that are not specified in a licence, but a licence may cover more than one financial product market.
The standard conditions for a licence include:
- the financial product market covered by the licence
- the clearing and settlement arrangements for the market
- the arrangements for enforcing the rules of the market.
The Minister may also place other conditions on the licence. The market operator can subsequently request changes to the conditions of its licence, or the Minister may vary the conditions on his or her own initiative.
A licence may be suspended or cancelled under certain circumstances, set out in s323 of the Act.
How to apply for a licence
A person who wants a licence to operate a financial product market should apply to us in writing. We will assess your application and ensure you have provided all relevant information, before giving the Minister advice about the application, which we must do within a reasonable time.
The information included with your application should clearly demonstrate:
- how the proposed market will meet all of the general obligations set out in s314 of the Act
- how the proposed market will meet the criteria in s316 of the Act
- whether you have the skills, expertise, procedures and capacity to satisfy each of the obligations on a continuing basis
- that you are a body corporate and have registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008.
A licensed market cannot be operated without market rules, and s328 of the Act sets out what those rules must include.
Any application for a financial product market licence needs to include the proposed rules for the market. It also needs a description of any consultation that has been carried out about the rules (public or targeted); details of any relevant international best practice; and evidence that the rules meet what’s required under s328 of the Act.
For more information on the approval of market rules, see s327 to 336 of the Act.
The information we require to assess your application will vary depending on the features of the market, but should also include:
- descriptions of the systems, structures, processes and resources you will use to meet the general obligations
- evidence you are able to supervise the proposed market, including details of how you will:
- monitor and assess the adequacy of those arrangements
- deal with each of the arrangements set out in s314 of the Act, including handling conflicts of interest, monitoring the conduct of participants, and enforcing compliance with your rules
- financial forecasts, including supporting information and details of assumptions made, to show you have sufficient financial resources to fund the market’s operation for at least 12 months
- details of any requested modifications to the standard licensing requirements, and reasons for them
- directors’ representations that you meet the criteria for a market operator
- independent verification of the systems, structures, processes and resources that you will use to comply with the general obligations.
We will liaise with you to seek further information or clarification as required.
When a licence may be issued
A financial product market licence may be issued if the Minister is satisfied that you will meet and comply with the general obligations of a licensed market operator (s314 of the Act), taking any proposed conditions of the licence into account. You must also be a body corporate and register on the FSPR.