Russell DeborahDr DEBORAH RUSSELL (Labour—New Lynn): One of the interesting characteristics of the speeches this afternoon is that each person has been explaining a little of what this bill is about. It's like a group of people in a darkened room where there is a statue in the middle and no one quite knows the shape but each person shines a light on it from a different angle. Between us all we are telling the whole story of what is going on with this bill and enabling people to understand it.It is actually quite a short bill; it's only 19 pages. As bills go in this House it's not a particularly long one. But it is complicated not in terms of what it does as Mr Yule has pointed out—because what it does is it brings us into line with our international markets—but in terms of the types of transactions it deals with. I thought that for the benefit of people listening I would try to bring it back to a very practical example of what one of these derivatives is and why they can be so complicated.A derivative: futures swaps—let me explain a future. The first recorded futures are actually from the Dojima Rice Exchange in Japan in about 1710 so they're quite an old form of financial instrument. But the ones that we are really familiar with these days derive from the Chicago Board of Trade which was first set up in 1848. The first futures trades were on corn. Essentially what would happen is that a farmer a corn-grower would agree say in spring—and that would of course be in April in the United States—that come the Autumn he—and it probably was a he—would sell his crop for a certain price. So he would get the money right then in April and come August he would actually have to hand his crop over. So in essence he would put a price on it in April for delivery in August. That was the futures contract. It sounds very simple. Indeed futures are quite simple in that respect but they involve a bet on the future.So for the people who are trying to understand what goes on with these complicated sorts of financial instruments think of them as a bet—a bet like a bet at the horse races where you're not quite sure what the outcome is going to be. If you're a good punter then you've probably got a pretty good chance of bringing home some of the money. The problem is when these bets get piled one on top of the other. So imagine that as a punter a punter might go and place a bet on a horse race at the TAB—come Melbourne Cup day I'm sure many of us will be doing that—but then she perhaps might go and place another bet on a different horse and one bet would counter the other a little bit and spread the risk a bit. But then imagine that the punter in addition to doing that might go and make a little casual investment as we often do in our office sweepstake on Melbourne Cup day and spread the risk a little bit further. But then imagine that that punter on top of that says to her mate Actually I'm going to sell you the proceeds of my bet. We don't know what it's going to be but here's my bet. Here's my betting ticket and I'm got to sell it to you for $1. I don't know what the outcome is going to be yet." So you add another layer on to the bet. That's what's happened with derivatives and that's what happened in the 2008 global financial crash. As my colleague Mr Greg O'Connor explained layer upon layer of complexity was added on to these really quite simple bets and when the original bets didn't pay off the whole structure came tumbling down.I think a little bit of extra explanation is needed here. The whole structure came tumbling down because too many of the punters didn't have any skin in the game. They didn't have any skin in the game because in this great complex world of financial trading no money actually swapped hands. No one actually had to pay anything over. So in the wake of the global financial crisis one of the responses that were put into place was to say that around derivatives trading around trading these complicated futures and swaps and the like an actual margin—a little bit of the earnings—actually had to change hands and be at risk in any transaction. So it brings an element of reality to what was going on in those very complicated derivatives markets.Every player in those markets now has to have some skin in the game—that is the rule that is required in the international markets. For New Zealand to be able to participate in these markets as Mr Yule pointed out we need to ensure that people here in New Zealand also have skin in the game. So it enables our traders to participate in those international markets. It's a critical part of our liquidity and the way we manage our liquidity. There is another issue that was dealt with by this particular bill and that's to do with well the LIBOR—and everyone goes "What on earth was the LIBOR?" It was the London Inter-bank Offered Rate. What it did was—it was a way of setting interest rates and it depended on banks self-reporting what interest rates they thought ought to be underpinning the market. Once you had that rate underpinned then people in that market could go ahead and trade and understand what was going on in the market. So you know the banks would submit an interest rate and give a picture of the health of the system. The system operated on trust and often systems operating on trust can do very very well but in this case the sums of money at stake were such that people took advantage of it and manipulated the LIBOR the London Inter-bank Offered Rate. So part of what this bill does is it ensures that instead of having a system that operates just on trust in fact the way that rate is set is determined by actual bank rates. It has to be set no longer on trust but in a certified way. Again that's what's required by the international markets and this particular bill brings New Zealand into line with those international markets. It sounds like small things. It is quite complicated to understand this law. I think all of us had to work quite hard to get our heads around it and I wish to offer a huge tribute to the officials who guided us through this. It is challenging legislation because it is actually difficult to understand and it was difficult to get our heads around it but the officials guided us through it very nicely indeed and turned what for many people can be financial gibberish into quite plain English and helped us to understand what was going on. So a big tribute to those officials and it was a combination as always of the officials' work the work of the Minister the work of the Finance and Expenditure Committee and members of the select committee from all parties on that committee. We worked on this bill together and I think we've come to a very good outcome. Madam Speaker I commend this bill to the House."