1. Compliance
  2. Derivatives issuers
  3. Who needs to comply
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Derivatives Issuers

Who needs to comply


What is a derivative?

A derivative could include:

  • a futures contract or forward
  • an option
  • a swap
  • a contract for difference, margin contract or rolling spot contract
  • a cap, collar, floor or spread.

Interpretation of definition

In section 8(4) of the Financial Markets Conduct Act 2013 (FMC Act), a derivative is defined as an agreement in relation to which the following conditions are satisfied:

  • under the agreement, a party to the agreement must, or may be required to, provide at some future time consideration of a particular kind or kinds to another person
  • that future time is not less than three working days, for a foreign exchange agreement, or one working day, in any other case, after the time at which the agreement is entered into
  • the amount of the consideration, or the value of the agreement, is ultimately determined, is derived from, or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable), including, for example, one or more of the following:
    • an asset
    • a rate (including an interest rate or exchange rate)
    • an index
    • a commodity.

It also includes any transaction, regardless of duration, that is recurrently entered into in the financial markets in New Zealand or overseas and is commonly referred to” as:

  • a futures contract or forward
  • an option (except options to acquire an equity security, a debt security, or a managed investment product by way of issue)
  • a swap
  • a contract for difference, margin contract or rolling spot contract
  • a cap, collar, floor or spread.

See section 8(4) of the FMC Act for the full definition.

In our view:

  • “recurrently entered into” means the product must be regularly traded in the market
  • “commonly referred to” means issuers cannot rename an existing transaction type to avoid it being defined as a derivative. We believe that if most of the market refers to a transaction as, for example, an option or contract for difference, then it will be a derivative.

We have the power to declare any arrangement used for investment or risk management as a particular kind of financial product. We may use this power if an arrangement has been structured to avoid falling within the definition of a derivative, but in our view still functions like a derivative.

We can also declare that a derivative is not a financial product. We have used this power to designate certain short-duration forward foreign exchange contracts out of the FMC Act regime – see our designation notice for more information.


What is a regulated offer?

A regulated offer includes any offer of derivatives when disclosure must be made to one or more investors, for example, because an investor is a retail investor. See section 41 of the FMC Act.

Will you need a licence?

You will need a licence if you want to make a regulated offer of derivatives, as defined in the Act.

I offer derivatives services to overseas clients only, do I need a licence?

Under section 47 of the FMC Act, a derivatives issuer is required to be licensed if it is making a regulated offer. A regulated offer includes any offer of derivatives when disclosure must be made to one or more investors, for example, because an investor is a retail investor. However disclosure is only required for offers of financial products in New Zealand. So if offers are not made to NZ residents, the entity does not need to be licensed.

You should be aware that a registered but not licensed issuer falls within our jurisdiction, for example under the Fair Dealing provisions of the FMC Act. In addition, we now have the power to direct the Registrar of Financial Service Providers to deregister a provider from the FSPR. This action would be taken where registration is likely to create a false or misleading impression that the provider is regulated in NZ or providing services from or in NZ, or where it is otherwise likely to damage the integrity or reputation of NZ’s financial markets or regulatory arrangements.

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