Home | Databases | WorldLII | Search | Feedback New Zealand Securities Commission

NZFOX Share options contracts - Declaration as a futures contract in terms of the Securities Markets Act 1988 [2005] NZSecCom 5 (29 April 2005)

Last Updated: 10 November 2014

NZFOX SHARE OPTIONS CONTRACTS - DECLARATION AS A FUTURES CONTRACT IN TERMS OF THE
SECURITIES MARKETS ACT 1988.

29 April 2005

1. New Zealand Exchange Limited ("NZX") has asked the Commission to declare NZFOX share options to be "futures contracts" for the purposes of New Zealand law. The Commission seeks comments on this proposal.
2. The NZFOX share options will be options to buy or sell New Zealand equity securities listed on NZX's markets. The NZFOX share options are created and marketed in New Zealand by NZX but will trade on the Sydney Futures Exchange ("SFE"), an authorised futures exchange under New Zealand law. The terms and contract specifications for the NZFOX share options are available from the SFE website at http://www.sfe.com.au, in section 6c (commencing on page 197).
3. The NZFOX share options will be third party options created independently of the issuer of the listed securities. They are able to be settled otherwise than by delivery. As these share options are synthetic in nature and created independently of the issuer of the listed securities, the disclosure requirements (about the issuer of the listed securities) in terms of the Securities Act 1978 do not appear to provide the best regulatory solution for these products.
4. The NZFOX share options appear to have most of the characteristics of a "futures contract". However, there is some doubt as to whether they fall entirely within the definition of a "futures contract" in the Securities Markets Act 1988. To provide certainty in the market NZX has sought a declaration that NZFOX share options be declared to be "futures contracts' in terms of the Securities Markets At 1988.
5. In 1990 the Commission had made a similar declaration in respect of equity options over New Zealand Stock Exchange Limited shares traded on the New Zealand Futures and Options Exchange and offered in accordance with the by-laws of the New Zealand Futures and Options Exchange.
6. The declaration sought by NZX would provide certainty about the regulatory treatment of these options and the regulatory obligations of dealers in the options.
7. In New Zealand all futures dealers must be authorised by the Commission. It is the Commission's preference that dealers in NZXFOX share options become NZX Futures and Options Participants under the NZX Futures and Options Rules.
8. The Commission has granted a class authorisation for NZX Futures and Options Participants. This means that if the declaration is granted any person approved by NZX as a Futures and Options Participant will be authorised at law to deal in NZFOX share options.
9. As the declaration is likely to affect some of the business community who are likely to deal in such NZFOX share options, we are inviting comments to assist the Commission to consider the application for the declaration sought.
10. Should you wish to comment on the matter may we please receive your comments by 5 p.m. Friday, 20 May 2005. Your comments may be sent by email to narmada.patel@seccom.govt.nz or sent in hard copy to -
    Narmada Patel
    Senior Solicitor
    Securities Commission
    Level 8, Unisys House
    P O Box 1179
    WELLINGTON
    
    Facsimile: (04) 472 8076
11. Please note that any submissions received by the Commission will be subject to the Official Information Act 1982. Any request for submissions will be considered under that Act. Please advise if you have any objection to publication of your submission.