Dalziel Lianne: Third Readings — 
Text is incorporated into the Bound Volume 
Dalziel Lianne: Third Readings — 
[Sitting date: 17 November 2009. Volume:659;Page:7708. Text is incorporated into the Bound Volume.] 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I am pleased to see the final readings of these four bills the Reserve Bank of New Zealand Amendment Bill the Securities Markets Amendment Bill the Personal Property Securities Bill and the Securities Amendment Bill which were originally introduced as the Settlement Systems Futures and Emissions Units Bill. As the Minister of Commerce has just said I had the privilege of referring that bill to the Commerce Committee as the then Minister of Commerce just prior to the election last year. I also had the privilege of hearing submissions on it as the chair of the Commerce Committee. 
I too place on record my congratulations to the members of the financial community who made submissions to the select committee. I think all of them did so with the desire to achieve a good outcome which I believe we have achieved here. I also place on record my thanks to the officials from both the Ministry of Economic Development and the Reserve Bank of New Zealand. Their detailed technical advice was absolutely necessary in order for us to get the regulatory framework right for clearing and settlement systems that will meet the expectations of domestic and international participants. I think that is the strongest point that I want to make in the final reading of these bills—the fact that we are talking about introducing a regulatory framework. I know we have now a Minister for Regulatory Reform in this country. We often hear regulation being spoken of in disparaging terms but in fact we need to have strong regulation in our financial markets as has been seen over recent times to an unprecedented extent probably. 
The purpose of these bills is to allow New Zealand settlement systems to apply for designation bringing them under a regulatory regime that in return provides additional legal protections in the case of a participant’s insolvency or default. That is probably the primary feature of the proposition contained within the legislation. Despite the provision for regulation the bills actually combine to reduce compliance costs by aligning the regulation of exchanges that seek to operate in both the securities and futures markets and by enacting that a person approved by the operator of an authorised futures exchange is an authorised futures dealer. So even though we are again talking about a new regulatory framework being put into legislation we are in fact talking about a reduction in compliance costs because it minimises the impact on those who are already regulated under different parts of our law. 
The bills also clarify the regulatory treatment of emissions units. Given the controversy surrounding the Government’s approach to the emissions trading scheme I am sure that colleagues will expand on that further. But I will make one very strong point: this is legislation that came from the bottom up. This was not something that the Government designed in the abstract. The industry came to us and said it needed to be in a position to have a proper regulatory framework for the trading of emissions units whether they were Kyoto units or voluntary units. We have to have this platform in place in order for New Zealand to play whatever role it wants to play on the world stage in that regard. The use of an exposure draft process with an exposure draft bill having been made available to the market for considerable consultation before the Settlement Systems Futures and Emissions Units Bill was even introduced to the House I believe puts us in a very strong position to be able to say this is good legislation that is well supported by the markets it is designed to serve. 
I compare that process with the way that the current emissions trading scheme legislation has been dealt with by the Government: not allowing sufficient time to be spent on the bill at the select committee so the select committee then referred an unamended bill back to the House because there could not be agreement on how it should be reported back. That was done in the knowledge that the Government intends to table extensive amendments next week after it has reached an agreement with the Maori Party with which negotiations are being conducted behind closed doors. One has to wonder whether that process will serve the interests of the markets that the legislation is designed to serve. I am deeply concerned about that but I am sure others will have a lot more to say about it than I will. 
The decision also to separate these bills from a broader assessment of our settlement services in terms of the structure of ownership and governance was also a good one and I look forward to an update from the Government on where that is up to. I place on record my very strong personal point of view in relation to the platform. I believe that the platform should be treated as a public asset and a core item of infrastructure so I believe the Government ought to address that in the second stage of the review of the settlement systems. 
Rather than working through the detail of the legislation I want to provide a little background context. I think that was best expressed in the NZX submission to the select committee. It talks not about this legislation in New Zealand but about why we need to have legislation like this in an international context. 
The NZX submission reads: “Over the past year global markets have seen unprecedented declines in value and failures in over the counter and un-regulated risk management and settlement functions. Globally credit has contracted and corporates are more acutely analysing the counterparty risk that it takes against each and every counterparty in its ordinary trading patterns. What was once seen as a safe partner on the other side of the deal is now rigorously assessed for credit worthiness following a year in which names like Bear Stearns and Lehman Brothers failed. The completely un-regulated rise of off-exchange or over the counter products has now proven to have created serious short and long term uncertainty in global markets and an overall movement towards a more conservative outlook. 
Against this background New Zealand has a settlement system for its capital markets that is unique globally. Currently NZX Participants take counterparty risk against each other and settle trades bilaterally. The international norm is for a Clearing House to operate a central counterparty or otherwise novate net and clear and settle trades. This internationally prevailing model allows participants to easily assess the counterparty risk of a single institution that is prudentially and otherwise regulated by a key central government agency. 
In reviewing its settlement systems as part of a required upgrade NZX considered an internationally vanilla model was more likely to promote confidence and international participation in New Zealand’s capital markets and reduce risk for domestic participants. 
In order to promote confidence and participation in New Zealand’s capital markets including trading in derivatives of carbon products the clearing and settlement infrastructure must be operated in a way that is consistent with international best practice and illustrates soundness and efficiency in the underlying systems and regulatory framework. International best practice is reflected in the recommendations of the joint Committee on Payment Systems of the … IOSCO and Bank for International Settlements … in relation to Securities Settlement Systems and Central Counterparty Settlement Systems … . NZX has utilised the BIS/IOSCO recommendations is making changes to its settlement environment and where appropriate references those recommendations throughout this submission.” 
I do not normally read into  
Hansard 
 an exact quote from a submission of such length as that one. But the reason I have done so on this occasion is that NZX has encapsulated in those four paragraphs the essence of why this legislation is so utterly necessary in the current environment and why it will enable New Zealand’s capital markets to go forward. New Zealand’s participation in various forms of carbon trading is to be done now on an internationally accepted platform. I would like to thank the Government for pursuing this legislation. I express slight disappointment that it took so long to complete the passage of this legislation through the House despite the fact that our very good select committee had it back in the House by June and it is now November. On that note I would like to recommend the concluding reading of these bills as broken up into their individual components from the Settlement Systems Futures and Emissions Units Bill.