Bayly Andrew; Rurawhe AdrianANDREW BAYLY (National—Hunua): I must admit I'm very surprised by that last contribution from the Hon Ron Mark because I knew he was an expert in financial derivatives. When you go and buy warships sometimes you have to buy future currency—you know FX currency—and I thought that a man like you with your experience would actually know about these things and want to talk about the $20 billion you're spending in defence and how you're going to make sure it doesn't cost a cent more than what you've actually budgeted for. So I'm a little bit disappointed by the Minister of Defence. I think I'm emotional. I'm just disappointed.This is a very important bill. We've had a number of very good contributions including from my colleague there Mr McKelvie. We on the Finance and Expenditure Committee enjoyed this bill because we knew it was making a difference to New Zealand financial markets. At the moment derivatives—which can be broadly defined as things like forward rate agreements foreign exchange swaps interest rate swaps—are effectively ways of dealing with risk. In many cases derivatives are split up. So if you decide to buy some currency and to actually buy that forward at a certain date you can actually buy it now with certainty that when you bought it in say 90 days' time—you can actually buy it at that date even though the exchange rate may have moved quite significantly during the intervening time.Another example is if you want to lock in interest rates. You may have a floating mortgage but you may wish to move to a fixed rate and you can actually swap that part—and that's where the name swap" comes from. They're complex financial instruments but they essentially allow banks to manage their massive exchanges of cash and the way they fund their operations. That's why they're absolutely crucial to financial institutions banks being one of them but even such institutions as the New Zealand Superannuation Fund—all those large financial institutions. They are heavily using swaps and quite legitimately so because as I say it's a way of making informed decisions protecting themselves against unwarranted risk or in some cases deciding to take on a risk where they see a market is going to change. They will bet that the market is going to move against them.This bill is about ensuring that our financial institutions can comply with the international requirements for benchmarking of these types of financial instruments called derivatives. Now at the moment New Zealand is in a state where we largely rely on New Zealand's type of benchmarking which is the threshold or the standard by which we measure the certainty around these and the type of these instruments—the accreditation if I can use another word—and up to now that's been fine. A classic benchmark that most people will know is when they do a house mortgage. Banks will quote their own bank bill rate. That term is very appropriate for the New Zealand context but in the international context it has no reference. Often they will use a London Interbank Offered Rate or some other banking term to set what might be a base rate.So New Zealand is in a situation where we've been using our own benchmarks but with the movement around the world to make sure that we can standardise the benchmarking—the standardising of that accreditation—it was imperative that we moved quickly to actually make sure that New Zealand complied with our international requirements. In some cases it's hopeful that even some of the New Zealand benchmarks may be used in a continuous fashion. But the main thing was to move quickly so that our banks could continue to operate in international markets buying basically finance to fund their banking operations—you know banks take in money and then they lend it out—and to be able to do that in a way that they could manage their portfolio. This bill is a crucial part of that.I think one of the things about this bill is the importance in terms of how those operations take place and I think one of the things which will come about through this is greater certainty for our financial institutions. It doesn't mean that we're running our financial markets in a riskier manner; it just merely makes sure that we're complying with our international obligations. I think that on those grounds this is a very valuable bill and one that should be commended.ASSISTANT SPEAKER (Adrian Rurawhe): I'm sorry to interrupt the member but it's come time for me to leave the Chair. This exciting bill is interrupted and is set down for exciting resumption next sitting day.Debate interrupted.The House adjourned at 6 p.m."