Pursuant to section 38 of the Securities Markets Act 1988, the Securities Commission gives the following notice.
N o t i c e
Clause 1: Title, commencement, and principal notice (1) This notice is the Authorised Futures Dealers Notice (No. 3) 2005 Amendment Notice 2009.
(2) This notice comes into force on the day after the date of its publication in the New Zealand Gazette.
(3) This notice amends the Authorised Futures Dealers Notice (No. 3) 2005.
Clause 2: Renewal of and amendment to the principal notice (1) Clause 1(3) of the Authorised Futures Dealers Notice (No. 3) 2005 is amended by omitting
"30 November 2009"
"30 June 2011".
(2) The Authorised Futures Dealers Notice (No. 3) 2005 is amended by inserting the following clauses (including headings) in their appropriate numerical order:
Clause 5: Capital adequacy requirements (1) The company must at all times be able to pay its debts as they become due in the normal course of business.
(2) The company must comply with the Regulations as if it were a dealer for the purposes of the Regulations.
(3) The company must ensure that its Surplus Liquid Funds exceeds at all times its Prescribed Liquid Funds Amount.
(4) The company’s Prescribed Liquid Funds Amount is $1,000,000.00.
(5) The company’s Surplus Liquid Funds is the aggregate of all of its Liquid Assets, less any risk-based reductions to its Liquid Assets, less its Gross External Liabilities.
(6) The company’s Liquid Assets are:
(b) cash equivalents (as defined by NZ IAS 7);
(c) trade receivables realisable within the next three months; and
(d) financial assets that have a ready market, which are valued at current market prices.
(7) In calculating the company’s Liquid Assets that calculation excludes:
(a) any client funds held by the company;
(b) the value of any asset encumbered as a security against another person’s liability;
(c) the assets of any trust of which the company is a trustee;
(d) loans and advances to, or amounts owing by, any related party or associate; and
(e) any asset that directly or indirectly funds an investment in or loan to the company itself.
(8) The company must apply the following risk-based reductions to the calculation of its Liquid Assets:
(a) for a futures contract entered into where the client has not paid to the futures dealer any margin due in respect of that futures contract by the 2nd business day following the date the liability to make that margin payment arose, a reduction of 120% on that uncollected margin;
(b) for equity securities held or receivable by the company including short positions:
(i) for leading equities (meaning NZSX listed equities or equities listed on the main board of an overseas exchange):
A. 10% for an equity ranked 1 to 50 in the leading index of the relevant exchange; or
B. 15% for all other equities quoted on the main board; and
(ii) for rights, the lesser of:
A. 100%, or
B. 10% of the combined value of rights and application monies; and
(iii) for other equity securities (including partly paid shares), 100%;
(c) for Liquid Assets comprising debt securities in New Zealand dollars:
Security Type NZ Dollar Domiciled
Under 1 yr NZ Dollar Domiciled
1-3 yrs NZ Dollar Domiciled
3-5 yrs NZ Dollar Domiciled
Government Securities 0.5% 1.5% 3.0% 5.0%
Investment Grade (Non-Govt) 1.5% 3.5% 4.5% 7.0%
Rated Non Investment Grade (Non-Govt) 4.0% 7.0% 8.5% 10.0%
Other 6.0% 8.0% 10.0% 12.5%
* All rated securities must carry a rating by an agency approved by the Reserve Bank for the purposes of section 80
of the Reserve Bank of New Zealand Act 1989.
(d) for Liquid Assets comprising debt securities in foreign currencies:
Security Type Foreign Currencies
Under 1 yr Foreign Currencies
1-3 yrs Foreign Currencies
3-5 yrs Foreign Currencies
Government Securities 0.6% 1.8% 3.6% 6.0%
(Non-Govt) 1.8% 4.2% 5.4% 8.4%
Rated Non Investment Grade (Non-Govt) 4.8% 9.8% 10.2% 12%
Other 7.2% 9.6% 12% 15.5%
*All rated securities must carry a rating by an agency approved by the Reserve Bank for the purposes of section 80
of the Reserve Bank of New Zealand Act 1989.
(9) The company’s Gross External Liabilities include its current, long-term and contingent liabilities, whether or not those contingent liabilities appear on the company’s statements of financial position.
(10)In calculating the company’s Gross External Liabilities that calculation excludes:
(a) any client funds held by the company; and
(b) the liabilities of any trust of which the company is a trustee.
Clause 6: Reporting requirements (1) The company must:
(a) appoint a compliance officer with responsibility for ensuring compliance with this Authorisation Notice.
(b) make available to the compliance reporter any information the compliance reporter requests to satisfy itself that the company has complied with the capital adequacy requirements in clause 5, the Regulations, or the policies and procedures set out in its compliance manual.
(2) In addition to matters referred in clause 3(2)(j), the agreed upon procedures engagement terms must provide for (without limitation):
(a) the compliance reporter to receive the monthly reports referred to in clause 6(3) and semi-annual prospective financial statements referred to in clause 6(7) from the company;
(b) the compliance reporter to check each month that:
(i) the monthly report contains all of the information that is required to be in the monthly report pursuant to clause 6(3);
(ii) each of the statements required to be referred to in the certificate pursuant to clause 6(4) have been certified as true by the directors;
(iii) the log prepared under clause 6(5)c does not disclose any breach of the capital adequacy requirements in clause 5(3) of this notice;
(c) the compliance reporter to check the semi-annual prospective financial statements to ensure that they do not disclose that the company is likely to breach the capital adequacy requirements contained in clause 5(3) of this notice and that they disclose positive net cash inflows for each month ;
(d) The compliance reporter to check a sample of days on a semi-annual basis to:
(i) confirm that the calculations required under clause 6(5)(a) were performed on that day and signed off as reviewed by the compliance officer or the chief executive officer;
(ii) confirm that the results of the calculations agree to the logs provided to the compliance reporter on a monthly basis;
(iii) confirm that the calculations were performed in compliance with clause 5;
(iv) perform additional procedures, as set out in the agreed upon procedures, over the accuracy of the data used in the calculations.
(e) the compliance reporter to report to the Securities Commission within 20 working days of the end of each month if:
(i) the company fails to provide the compliance reporter with the monthly report in accordance with clause 6(3) or semi-annual prospective financial statements in accordance with clause 6(7), or to include in any monthly report such information as it is required to;
(ii) the directors, or any of them, do not certify the truth of any of the statements required to be contained in the certificate under clause 6(4) without qualification;
(iii) the monthly report discloses a breach of the conditions in clause 5 by the company;
(iv) the monthly report discloses a breach of the Regulations;
(v) testing required under clause 6(2)(d) indicates any breach has occurred which was not reported at the time of the breach;
(3) Within 10 working days of the end of each month, the company must provide a monthly report to its compliance reporter that contains the following:
(a) certification from the company’s directors in terms of clause 6(4) of this notice;
(b) any memorandum, and any other documents or information, required by clause 6(6) of this notice; and
(c) the calculations required under clause 6(5).
(4) The certificate required by clause 6(3)(a) must be signed by all directors of the company, and should state that, after due enquiry, and to the extent that the following statements are true, the directors of the company are satisfied that:
(a) the company currently has, and has maintained at all times during the previous month, the amount of Surplus Liquid Funds required by clause 5(3);
(b) the calculations required under clause 6(5) are true and correct;
(c) the company can reasonably be expected to maintain the required level of Surplus Liquid Funds for at least the next quarter;
(d) the company has made all payments it was obliged to make as they fell due;
(e) the company can reasonably be expected to continue to pay its debts as they fall due for at least the quarter;
(f) there are no material matters which have, or are likely to, adversely affect the company’s:
(i) financial position;
(ii) financial performance; or
(iii) cash flows;
(g) the company has complied with the regulations in respect of its handling client money and property, and recording client money and property and client dealing as if the company was a dealer for the purposes of the Regulations;
(5) The company must:
(a) calculate, in respect of each business day, by 10.00am on the following business day, its Surplus Liquid Funds in accordance with clause 5 to ensure that the company complies with clause 5(3);
(b) report to both the Securities Commission and the compliance reporter on the business day following the day in respect of which the calculation is made if the calculation performed in clause 6(5)(a) does not comply with clause 5(3) including an explanation of the cause of the breach and the remedial action planned;
(c) maintain a log of the calculations required under this condition and produce it to the compliance reporter or the Securities Commission upon request; and
(d) provide a copy of the log of these daily calculations to the compliance reporter as part of the company’s monthly report.
(6) If the directors are unable to certify that, after due inquiry, they are satisfied that each statement contained in 6(4) is true, the directors of the company must prepare a memorandum to explain the circumstances which prevent the directors providing that certification, and that memorandum must contain or attach all information and documents which are necessary to fully explain those circumstances.
(7) The company must prepare prospective financial statements, which will be supplied to the compliance reporter on a
semi-annual basis, that:
(a) contain a forecast of cash flows over at least the next six months based on the reasonable expectations of the board of the company as to what is likely to happen over this period;
(b) contain forecast statements of financial position as at the end of each of the next six months based on the reasonable expectations of the board of the company as to what is likely to happen over this period;
(c) document the company’s calculations and assumptions, and explain why the assumptions are appropriate;
(d) provides reasons when the forecast of cash flows shows a total net cash outflow in any month; and
(e) is signed by all directors of the company, certifying that the forecasts are not known by the directors to be false and misleading.
Dated at Wellington this 24th day of November 2009.
The Common Seal of the Securities Commission was affixed in the presence of:
COLIN BEYER, Member.