DETAILS OF SUPPORTING DOCUMENTATION REQUIRED TO BECOME A DERIVATIVES MARKET PARTICIPANT

REQUIREMENT / DOCUMENTATION / PARTICIPANT COMMENTS / NZXR COMMENTS
Application Form: / Appendix 6
Compliance Manager Details: / (not required for Principal Book Only Participants)
Statutory Declaration Required
Undertaking from Overseas Applicant:
(Rule 3.14.1) / If the Participant is not resident in New Zealand, it must appoint someone resident or incorporated in New Zealand,who is authorised to accept service of documents in New Zealand, on its behalf.
Accept Service – Responsible Executive:
(Rule 3.9.2) / If the Responsible Executive is not resident in New Zealand, they must appoint someone resident or incorporated in New Zealand, who is authorised to accept service of documents in New Zealand, on their behalf.
Business Plan:
(Procedure 3.1(f)) / Details regarding the intentions and future direction of the business with specific reference to the Participant’s activity as an NZX Derivatives Market Participant.
Emergency Contact Details: / Participant emergency contacts details (email, landline & mobile).
Responsible Executive:
(Procedure 3.11) / a)Undertaking and Declaration (Schedule 1);
b)Statutory Declaration (Schedule 2);
c)Employment history and experience (CV); and
d)Evidence of completion of Kaplan Papers.
Insurance Details:
(Rule 4.16) / a)Professional Indemnity Insurance;
b)Directors and Officers Liability Insurance (when applicable to the Legal Structure of the Participant).
Company Details:
(Procedure 3.1(a),(l) and (m)) / The following information / documentation should be provided:
a)Details of shareholders;
b)Certificate of Incorporation (or equivalent document confirming establishment of the entity);
c)Company Number;
d)Registered address of company if different to place of business;
e)Details of the type of Company and nature of its activities;
f)A description of your management structures evidencing that management is sufficiently experienced and capable to conduct business as a Participant;
g)A copy of the Participants’ Corporate Structure Chart; and
h)Details of any companies, partnerships or other business entities within the Participant’s group.
NZX Derivatives Advisors:
(Rule 2.4.1) / (not required for Principal Book Only Participants)
a)Application Form;
b)Statutory Declaration (Schedule 1); and
c)Undertaking (Schedule 2).
DMA Dealers / Dealers:
(Rule 8.3) / a)Application Form;
b)Statutory Declaration (Schedule 1);
c)Undertaking (Schedule 2); and
d)Designation of Access Rights (Schedule 3).
Direct Market Access and DMA Authorised Persons:
(Rule 8.3) / a)Application Form;
b)A copy of the written agreement between the Trading Participant and the DMA Authorised Person;
c)Details as to how the Participant will assess the DMA Authorised Persons ability to comply with the Rules before they grant them access;
d)Details of the training that will be given to DMA Authorised Persons;
e)How will the Participant become notified of new DMA Authorised Persons being added by a Client?
f)What ability does the Participant have to suspend the DMA Authorised Persons access at all levels?
Integrity, Reputation, Character:
(Procedure 3.1(d) and (e)) / The Participant should provide details of, or confirm that the following do not apply:
a)Details of any legal or arbitration proceedings active, threatened or pending against the Participant or any member of its group which may have a significant impact on the reputation of the Participant; and
b)Details of any adverse or potentially adverse matters which have been brought to the attention of any relevant regulatory authority during the last 6 years.
Technology:
(Procedure 3.1(h)) / The Participant should provide details of the software it will be using in relation to Client Assets and Capital Adequacy, together with details of the technology in place to undertake its business as a Participant and its conformance with NZX’s Trading System.
Compliance Plan and Compliance Manual / Procedures:
(Procedure 3.5) / (not required for Principal Book Only Participants)
The Compliance Plan should include a periodic review of the Participant’s obligations and identify the Participant’s key risks, together with establishing systems, procedures and controls to monitor and manage those risks.
The Participant’s compliance manual / procedure document should provide information for the business on its compliance obligations and how to manage situations where a possible breach of those requirements has occurred. These documents should, at a minimum, include the following Derivatives Market Rules:
  • Conflict Management – Rule 4.22;
  • Employee Trading – Rule 4.18;
  • Insider Trading – Rule 4.21;
  • Recording of Client Instructions – Rule 4.23;
  • Breaches – Rule 4.18.7;
  • Complaints – Rule 4.24;
  • Order Records – Rule 9.7;
  • Order Trading / Placing – Rule 9.4, 9.8; and
  • Risk Warnings – Rule 9.3.

Training Plan:
(Procedure 3.6) / This should be developed to ensure all personnel engaged in the Participant’s business obtain and maintain adequate knowledge relating to the Rules, Legislation and Trading System.
Business Continuity Plan:
(Procedure 3.7) / This should be developed to ensure that Participants at all times maintain adequate disaster recovery arrangements and the continuation of the Participant’s usual operations following short, medium and long term disruption.
Trading Operations Manual / Procedure Document: / Details of how an order that results in the execution of a trade through the Trading System is entered into the Trading System.
There should be specific examples of orders placed, which are cleared by:
a)Third Party Clearing;
b)Give Up / Take Up; and
c)Self Clearing.
Financial Details:
(Procedure 3.1(b)) / a)Copies of the Participant’s audited financial statements for the previous 5 years; and
b)Details of Payment and Accounting Systems being used.
Client Funds:
(Rule 11.3) / (not required for Principal Book Only Participants)
New Zealand – The Participant must provide evidence that they are a Licensed Derivatives Issuer as defined under the Financial Markets Conduct Act.
Overseas Participant – The Participant must provide evidence that it is subject to appropriate regulation in respect of the acceptance and holding of Client Funds.
Capital Adequacy:
(Rules 4.12, 4.26 and 4.30) / Participants requiring Capital must at all times maintain its Net Tangible Current Assets at a level equal to, or greater than, its Prescribed Minimum Capital Adequacy, which shall be the higher of:
a)The Minimum NTCA of the Participant Requiring Capital, as prescribed for its category of Participant by Rule 4.26; and
b)The Total Risk Requirement of the Participant Requiring Capital as calculated in accordance with Rule 4.30.
The Minimum NTCA levels are:
a)$500,000 (or foreign currency equivalent determined in accordance with Rule 14.12) for a Trading Participant (including, if directed as a condition of accreditation as a Principal Book Only Dealer, that Principal Book Only Dealer);
b)$500,000 (or foreign currency equivalent determined in accordance with Rule 14.12) for an Advising Firm; and
c)$250,000 (or foreign currency equivalent determined in accordance with Rule 14.12) for an Introducing Broker.
Client Agreements:
(Rule 6.5) / (not required for Principal Book Only Participants)
The Participant must enter into a signed written client agreement with each of its clients which must set out the terms of its relationship with its client. This must, without limitation, include the following:
a)The Advising Participant’s terms of business;
b)Details of the means by which the Client’s instructions will be accepted by the Advising Participant;
c)Confirmation that an assessment has been conducted of the Client’s suitability to engage in the particular types of trades (including Trades) contemplated;
d)In respect of a Class of Contracts only:
(i)Risk Warnings in relation to the Class of Contracts in respect of which the Advising Participant provides advice and / or executes Orders;
(ii)Details of the Advising Participant’s arrangements, if any, with a Trading Participant to facilitate Trades for that Client which must, at a minimum, include the matters in Rule 6.4.2;
(iii)A statement that, under the C&S Rules and C&S Agreement (if applicable), the Clearing and Settlement Terms of the Trade executed for that Client will be novated in accordance with the C&S Agreement (if applicable) and C&S Rules and the Relevant Clearing Participant will become principal in the resulting Relevant Settlement Transaction and take on all the Clearing and Settlement Terms for that Relevant Settlement Transaction, and the Client agrees to this novation pursuant to, and on the terms and conditions provided for under, the C&S Agreement (if applicable) and C&S Rules to the full extent required by law;
(iv)The Client’s rights and obligations in relation to the Clearing and Settlement of a Relevant Settlement Transaction will be limited to any rights against, and any obligations to, the Trading Participant and the Advising Participant (if applicable). The client will not have any rights against the Relevant Clearing Participant (except where the Trading Participant is the Relevant Clearing Participant) or CHO in relation to the Clearing and Settlement of the Relevant Settlement Transaction; and
(v)A statement that the Client grants the Advising Participant, at all times, full and exclusive rights, power and authority to act in all of the Advising Participant’s activities relating to the Relevant Clearing Participant to the exclusion of the Client, including full authority to bind the Client under the Advising Participant’s Trading Participant’s C&S Agreement (if any) and the C&S Rules and to authorise the holding of, and dealings with, that Client’s Client Funds in accordance with the Depository Rules;
(vi)A written disclosure statement specifying the name, telephone number and main business address of the Relevant Clearing Participant(s) which settles Trades on behalf of that Advising Participant; and
e)In respect of a Class of Contracts and any Derivatives Contracts trades on a F&O Exchange or Off Exchange, the terms and conditions specified by the Procedures as being applicable to such contracts.
Clearing and Settlement Agreement:
(Rule 6.4)
/ (for non CHO Participants)
A Trading Participant who is not a Clearing Participant must enter into, and maintain at all times, a written agreement with each of its Clearing Participant’s setting out the terms and conditions on which each Clearing Participant will clear and settle Trades executed by the Trading Participant. Each C&S Agreement must comply with the requirements of the C&S Rules.
Trading Agreement:
(Rule 7.3)
/ (for Advising Only Participants)
An Advising Participant which is not a Trading Participant must enter into and maintain a written Trading Agreement with a Trading Participant setting out the terms and conditions of their relationship.

December 2015