Settlement Systems Futures and Emissions Units Bill — Second Reading 
Settlement Systems Futures and Emissions Units Bill — Second Reading 
[Volume:658;Page:7593] 
Settlement Systems Futures and Emissions Units Bill 
Second Reading 
Hon NATHAN GUY (Minister of Internal Affairs) 
 on behalf of the  
Minister of Commerce 
: I move  
That the Settlement Systems Futures and Emissions Units Bill be now read a second time 
. The Settlement Systems Futures and Emissions Units Bill proposes three main amendments. The first is to allow for trade in securities and other products to be cleared and settled through designated systems that meet the expectations of international and domestic participants in New Zealand’s financial sector. The second is to align the regulation and exchanges seeking to operate in both securities and futures markets and to provide that a person approved by the operator of an authorised futures exchange is an authorised futures dealer. The third is to clarify the regulatory treatment of emissions units. 
The Commerce Committee made a number of useful changes to ensure that the legislation better achieves those objectives. The definition of “insolvency” was deleted and replaced with a new definition relating to when a participant becomes subject to an insolvency event on the date and time when an insolvency officer is appointed in respect of the participant. It is critical that the moment at which a participant becomes subject to an insolvency event is clear since new section 156S removes the finality protection in respect of a participant’s settlements 24 hours after the participant becomes subject to a specified insolvency event. 
Several amendments were also made to avoid potential problems in the event that a participant in a settlement transaction was declared insolvent while the settlement was only partly completed. The bill provides that the finality protection extends for 24 hours after the commencement of an insolvency to complete any settlement that was already in progress. In addition a further amendment means that an insolvent participant could regain finality protection if his or her transactions were duly authorised by the relevant insolvency officer appointed upon insolvency. Additional changes of a technical nature were made to ensure effective alignment between the bill and other relevant legislation including the Companies Act 1993 the Insolvency Act 2006 and the Insolvency (Cross-border) Act 2006. For example the amendments clarify which legislation applies to netting under the rules of a designated system and to netted balances as defined by the Companies Act and the Insolvency Act. This means that for any transactions subject to netting under the rules of a designated settlement system the general setting-off provisions in section 310 of the Companies Act or section 254 of the Insolvency Act would apply to the resulting balance and any transactions between the parties that were not netted. 
The intention of the bill is that those provisions prevail over the Insolvency (Cross-border) Act in regard to settlements made in accordance with the rules of a designated settlement system. The bill as it stands maintains various penalties for offences relating to a designated settlement system ranging from fines and imprisonment to revocation of designation. One change was made to bring the maximum fine for a body corporate into line with other jurisdictions. A number of changes were also made to the matters to be considered by regulators. New sections were inserted to expressly include the adequacy of a settlement system. Financial resources are among the factors that may be considered by the regulators in deciding whether to grant vary or revoke a designation. In the light of recent financial market failures this addition is a worthwhile precaution in conjunction with the existing general reference to considering the capability and capacity of the system operators. Another factor that regulators may consider in decisions regarding a designation is the impact on participant creditors of specifying that a settlement systems operator’s interest in property transferred to the operator by a participant or in which the participant has granted a security interest to the operator has priority over security interests in the property under new section 103A of the Personal Property Securities Act 1999. 
The final change I note is the change to the period within which the joint regulators the Reserve Bank and the Securities Commission could disallow a proposed amendment to the rules of a designated settlement system which is to be reduced from 40 working days to 20 working days. Should the regulators not disallow an amendment a provision was also made to enable them to notify the contact person of the designated settlement system and to allow the amendment to come into effect earlier than the end of the 20 working days. 
I want to record my appreciation of the participation of many members of the financial sector through the select committee process along with the work of the officials and indeed the Commerce Committee itself. It did some fantastic work. I appreciate that other parties in the House are keen to see this bill progress as part of an overarching commitment to building a sound and effective regulatory environment. I commend the bill to the House. 
Debate interrupted.