Pursuant to section 38 of the Securities Markets Act 1988, the Financial Markets Authority gives the following notice.
N o t i c e
1. Title, commencement, and expiry-(1) This notice is the Authorised Futures Dealers (CMC Markets NZ Limited) Notice 2011.
(2) This notice comes into force on 1 November 2011.
(3) This notice expires on the close of 31 October 2014.
2. Interpretation-(1) In this notice, unless the context otherwise requires:
Act means the Securities Markets Act 1988.
advertisement has the meaning given to it in section 2A of the Securities Act 1978, except that every reference to securities should be read as a reference to specified futures contracts, and every reference to the issuer should be read as a reference to the Company.
approved counterparty means a registered bank, an overseas bank, a company which is an authorised deposit-taking institution under the Banking Act 1959 (Commonwealth of Australia), or a company which is registered as a BIPRU 730k firm with the FSA.
Auditor means the qualified auditor who has been appointed by the Company and entered into agreed upon procedures with the Company in accordance with clause 5(1) and (2) of this notice.
Australian Financial Services Licence means a financial services licence issued under chapter 7 of the Corporations Act 2001.
CMC means CMC Markets Asia Pacific Pty Limited.
Company means CMC Markets NZ Limited.
disclosure document means a written document:
(a) describes and contains the offer of, and relates specifically to, the specified futures contracts; and
(b) includes all material matters applicable to the specified futures contracts from the current product disclosure statement issued by CMC in Australia under the Corporations Act 2001, with such changes as are necessary to:
(i) reflect the identity of the Company as the issuer of the specified futures contracts;
(ii) exclude matters that are only relevant to the requirements of CMC’s Australian Financial Services Licence; and
(iii) reflect that the offer is made in New Zealand.
discretionary investment management service has the meaning given to that term by section 12 of the Financial Advisers Act 2008.
FSA means Financial Services Authority of the United Kingdom.
offence of dishonesty means:
(a) an offence described in any of sections 104, 105B, 108 to 117, and 217 to 266 of the Crimes Act 1961;
(b) an offence described in any of sections 15 to 20 of the Summary Offences Act 1981; and
(c) an offence under the laws of another jurisdiction which is equivalent to an offence referred to in paragraphs (a) or (b).
Prescribed Liquid Funds Amount is the amount specified in clause 4(3).
qualified auditor has the same meaning as in section 2C of the Securities Act 1978.
regulated related party means a related party which is:
(a) the holder of an Australian Financial Services License;
(b) a BIPRU 730 firm registered with the FSA; or
(c) is approved in writing for that purpose by the Financial Markets Authority, whether individually or by reference to a class of license held by that firm.
Regulations means the Futures Industry (Client Funds) Regulations 1990.
remuneration means any commission, fee or other benefit, whether pecuniary or non-pecuniary, and whether direct or indirect; but in the case of an adviser, does not include wages or salary which are of a fixed amount.
specified futures contract means a futures contract that is:
(a) a contract for difference; or
(b) an option in respect of foreign currency or other forward foreign exchange contract that is issued by the Company and described in the disclosure document; and
(c) that is issued by the Company and described in the disclosure document.
Surplus Liquid Funds has the meaning set out in clause 4(4).
(2) Any term or expression that is defined in the Act or the Regulations and used, but not defined, in this notice has the same meaning as in the Act or the Regulations.
3. Authorisation-(1) The Company is authorised to carry on the business of dealing in specified futures contracts to which the Company is, or intends to be, a party.
(2) The authorisation is subject to the conditions that:
(a) the Company does not enter into specified futures contracts with any person other than a person who has entered into a written agreement with the Company, and then only in accordance with the terms of that agreement;
(b) before the Company enters into a specified futures contract with any person, that person has received a disclosure document that contains the following information:
(i) the name and contact details of the Company;
(ii) information about any significant benefits to which a holder of a specified futures contract will or may become entitled, the circumstances in which and times at which those benefits will or may be provided, and the way in which those benefits will or may be provided;
(iii) information about any significant risks associated with holding a class or classes of specified futures contract;
(iv) information about:
A. the cost of a specified futures contract;
B. any amounts that will or may be payable by a holder of a specified futures contract in respect of that specified futures contract after its acquisition, and the times at which those amounts will or may be payable; and
C. the amount of any margins, whether initial margins or variation margins, which must be lodged with the Company in respect of that specified futures contract;
(v) information about any other significant characteristics or features of a specified futures contract or of the rights, terms, conditions and obligations attaching to a specified futures contract;
(vi) general information about any significant taxation implications associated with a specified futures contract;
(vii) a statement describing how other information relating to a specified futures contract that is made available by the Company to holders or prospective holders of a specified futures contract, or to people more generally, may be accessed;
(viii) a description of the treatment of client money or property received, held or otherwise dealt with in connection with dealing in specified futures contracts, including any margin paid to the Company in connection with a specified futures contract;
(ix) the date of the disclosure document; and
(x) any other material matters applicable to a specified futures contract;
(c) every advertisement for a specified futures contract must refer to a disclosure document that relates to the specified futures contracts referred to in the advertisement;
(d) no advertisement shall contain any information, sound, image or other matter that is inconsistent with any disclosure document referred to in the advertisement;
(e) before the Company provides any advice or discretionary investment management service to any person in relation to a futures contract, the Company has provided that person with an adviser disclosure statement which clearly sets out the following information:
(i) The name and contact details of the Company;
(ii) a statement to the effect that that advice on futures contracts is regulated under the Company’s authorisation as a futures dealer and is not regulated under the Financial Advisers Act 2008;
(iii) the types of products the Company deals in, and if advice on any product is only provided by some advisers, which advisers can provide advice on each product;
(iv) a description of how the Company and its advisers are remunerated for futures dealing services;
(v) a description of any other factors which may materially influence the advice given by the Company or its advisers;
(vi) details of any bankruptcy or insolvency event occurring in the past five years in respect of the Company or one of its advisers;
(vii) details of any disciplinary or criminal proceedings resulting in an adverse finding in the past five years in respect of the Company or one of its advisers;
(viii) details of any conviction for an offence of dishonesty against any of the Company’s advisers;
(ix) a description of the internal and external disputes resolution schemes available to the client, and an explanation of how to make a complaint; and
(x) a description of the Financial Markets Authority’s role in authorising futures dealers, and details of how to contact the Financial Markets Authority;
(f) any Company document that states the Company has been authorised by the Financial Markets Authority to carry on the business of dealing in futures contracts includes a statement to the effect that:
(i) the Financial Markets Authority’s role in authorising futures dealers is limited and does not imply approval or endorsement of the business, trading or solvency of the Company; and
(ii) the Financial Markets Authority has not approved any agreements or any disclosure documents of the Company;
(g) the Company must at all times ensure that each director, employee or agent of the Company understands, and may reasonably be expected to comply with, all laws and regulations which are applicable to the Company, including all requirements of this authorisation;
(h) the Company must at all times ensure that each director, employee or agent of the Company who provides advice or discretionary investment management services in relation to futures contracts:
(i) exercises the care, diligence and skill that a reasonable adviser would exercise in the same circumstances;
(ii) has the competence, knowledge and skills to provide advice or discretionary investment management services to that client, and in respect of that product;
(iii) acts in the best interests of the client;
(iv) ensures that the client has sufficient information, in a form which enables the client to understand that information, to make an informed decision;
(v) ensures that the client understands whether or not any advice given takes into account the personal circumstances of the client; and
(vi) does not act in any way, or make any omission, which would bring the financial services profession, or any part of it, into disrepute;
(i) the Company complies with Regulations 3 to 8, 14 to 17 and 22 to 24 of the Regulations as if the Company were a dealer for the purposes of those Regulations, and must, when a client’s position in respect of a specified futures contract is closed out, promptly pay any money owing to the client under that specified futures contract into a client bank account;
(j) the amount of a client money which is withdrawn from the client bank account as margin for client transactions does not exceed:
(i) in relation to a particular specified futures contract, the amount described in the disclosure document relating to that specified futures contract in accordance with clause 3(2)(b) of this notice;
(ii) in relation to specified futures contracts entered into by a particular client, the amount of client funds held by the Company for that client; and
(iii) in aggregate, the amount of margin payable by the Company to an approved counterparty in respect of a contract entered into by the Company to hedge its exposure to client positions;
(k) the Company maintains proper records:
(i) to record dealings in respect of specified futures contracts with clients;
(ii) to record client money or property received, held or otherwise dealt with in connection with dealings in specified futures contracts; and
(iii) which are audited or reviewed, and reported on, in accordance with the Regulations;
(l) the Company’s financial statements are prepared and registered as if the Company is an issuer in terms of the Financial Reporting Act 1993 and are audited at least once a year by a qualified auditor under the Financial Reporting Act 1993;
(m) the Company sends a copy of its audited financial statements to the Financial Markets Authority not more than three months after the end of each financial year;
(n) the Company at all times meets the capital adequacy requirements set out in clause 4 of this notice;
(o) the Company at all times meets the reporting requirements set out in clause 5 of this notice;
(p) the Company maintains adequate professional indemnity insurance for its business at all times;
(q) the Company must, within three months after the end of each financial year, give a report to the Financial Markets Authority on the extent to which it has complied with its obligations under this notice in the preceding financial year;
(r) the Company must promptly provide to the Financial Markets Authority any information held by the company which is requested by the Financial Markets Authority for the purposes of any enquiry or investigation, or for the purposes of supervision of the Company; and
(s) the Company immediately notifies the Financial Markets Authority in writing of any material matter concerning the Company’s authorisation as a futures dealer, including the following events:
(i) the insolvency of the Company or the bankruptcy of any of its directors;
(ii) where the Company has failed to comply, or believes it will fail to comply, with the capital adequacy requirements set out in clause 4;
(iii) where a receiver, provisional liquidator, liquidator or a similar officer is appointed, or any resolution is passed or order made for the liquidation or dissolution of the Company;
(iv) if the Company, or any of its directors or senior management, is convicted of an indictable offence;
(v) any regulatory action taken against the Company, or any of its directors or senior management whether in
New Zealand or elsewhere;
(vi) if there is any material change to the nature of the business activities undertaken by the Company;
(vii) if there is any change to the shareholding, or ultimate beneficial ownership, of the Company; and
(viii) if any director or member of the senior management leaves the Company or if any new director or member of senior management is appointed to the Company.
4. 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 ensure that its Surplus Liquid Funds exceeds at all times its Prescribed Liquid Funds Amount.
(3) Except as provided in clause 6, the Company’s Prescribed Liquid Funds Amount is $1,000,000.00.
(4) 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.
(5) The Company’s Liquid Assets are:
(a) cash;
(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.
(6) 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) subject to clause 4(7), any loans and advances to, or amounts owing by, any related party or associate (including any margins lodged with a related party); and
(e) any asset that directly or indirectly funds an investment in or loan to the Company itself.
(7) Loans and advances to, or amounts owing by a related party or associate may be included in the company’s liquid assets if:
(a) the amount is receivable as a result of a transaction entered into by the Company in the ordinary course of its business on standard commercial terms applicable to arms length transactions with persons that are not associated with the Company;
(b) no part of the consideration for the transaction directly or indirectly funds an investment in or loan to the Company; and
(c) the total value of all such receivables, excluding margins on hedging arrangements, (before any discount is applied) does not exceed 20% of the total tangible assets of the Company.
(8) The Company must apply the following risk based reductions to the calculation of its Liquid Assets:
(a) For any loans and advances to, or amounts owing to which clause 4(7) applies (including any margins lodged with a related party), 18% of the value of the asset;
(b) 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;
(c) 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%;
(d) for Liquid Assets comprising debt securities in New Zealand dollars:
Security Type NZ Dollar Domiciled

Under 1yr NZ Dollar Domiciled

1-3 yrs NZ Dollar Domiciled

3-5 yrs NZ Dollar Domiciled


5+ yrs
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.
(e) for Liquid Assets comprising debt securities in foreign currencies:
Security Type Foreign
Currencies

Under 1yr Foreign Currencies

1-3 yrs Foreign Currencies

3-5 yrs Foreign
Currencies

5+ yrs
Government Securities 0.6% 1.8% 3.6% 6.0%
Investment Grade (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.
5. Reporting requirements-(1) The Company must:
(a) appoint an Auditor;
(b) appoint a compliance officer with responsibility for ensuring compliance with this authorisation notice; and
(c) make available to the Auditor any information the Auditor requests to satisfy itself that the Company has complied with the capital adequacy requirements in clause 4.
(2) The Company must enter into agreed upon procedures with the Auditor, a copy of which must be filed with the Financial Markets Authority, which provide for (without limitation):
(a) the Auditor to receive the monthly reports referred to in clause 5(3) and semi-annual prospective financial statements referred to in clause 5(8) from the Company;
(b) the Auditor 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 5(3);
(ii) each of the statements required to be referred to in the certificate pursuant to clause 5(4) have been certified as true by the directors; and
(iii) the log prepared under clause 5(4)(c) does not disclose any breach of the capital adequacy requirements in clause 4(2) of this notice;
(c) the Auditor 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 4(2) of this notice and that they disclose positive net cash inflows for each month;
(d) the Auditor to check a sample of days on a semi-annual basis to:
(i) confirm that the calculations required under clause 6(4)(a) were performed on that day and signed off as reviewed by the compliance officer, the chief financial officer, the financial controller or the chief executive officer;
(ii) confirm that the results of the calculations agree to the logs provided to the Auditor on a monthly basis;
(iii) confirm that the calculations were performed in compliance with clause 4; and
(iv) perform additional procedures, as set out in the agreed upon procedures, over the accuracy of the data used in the calculations;
(e) the Auditor to report to the Financial Markets Authority within 20 working days of the end of each month if:
(i) the Company fails to provide the Auditor with the monthly report in accordance with clause 5(3) or semi-annual prospective financial statements in accordance with clause 5(8), 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 5(5) without qualification;
(iii) the monthly report discloses a breach of the conditions in clause 4 by the Company;
(iv) the monthly report discloses a breach of the conditions contained in clauses 3(3)(f) and (g); and
(v) testing required under clause 5(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 Auditor that contains the following:
(a) Certification from the Company’s directors in terms of clause 5(5) of this notice;
(b) any memorandum, and any other documents or information, required by clause 5(6) of this notice; and
(c) the calculations required under clause 5(4).
(4) The Company must:
(a) calculate, in respect of each business day’s UK close of business, by 4.00pm (NZ time) on the second business day after the date in respect of which the calculation is made, its Surplus Liquid Funds in accordance with clause 4 to ensure that the Company complies with clause 4(2);
(b) report to both the Financial Markets Authority and the Auditor on the second business day after the date in respect of which the calculation is made if the calculation performed in clause 5(4)(a) does not comply with clause 4(2) 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 Auditor or the Financial Markets Authority upon request; and
(d) provide a copy of the log of these daily calculations to the Auditor as part of the Company’s monthly report.
(5) The certificate required by clause 4(3)(a) must be signed by two directors of the Company on behalf of all directors, 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 4(2);
(b) the calculations required under clause 5(4) 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 conditions 3(3)(f) and (g) of this notice regarding handling client money (including any client money which is applied as a margin in respect of a client’s contract) and property, and recording client money and property and client dealing.
(6) If the directors are unable to certify that, after due inquiry, they are satisfied that each statement contained in 5(5) is true, the directors of the Company must prepare a memorandum to explain the circumstances which prevent the directors from providing that certification, and that memorandum should 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 Auditor 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 two directors of the Company on behalf of all directors, certifying that the forecasts are not known by the directors to be false and misleading.
6. Transitional provisions-(1) From the commencement of this notice until 31 March 2012, the Company’s Prescribed Liquid Funds Amount is $700,000.00.
(2) From the commencement of this notice until 31 March 2012, the Company may include loans and advances to, or amounts owing by, a related party or associate in excess of 20% of total tangible assets, provided that:
(a) every advance which is included complies with clause 4(7)(a) and (b); and
(b) the Company applies an additional discount (after applying the discount in clause 4(8) to the full amount) equal to any amount by which the undiscounted amount exceeds the amount shown in the Company’s audited financial statements as at 31 March 2011.
(3) From the commencement of this notice until 31 December 2011, the Company is not required to calculate its surplus liquid assets on a daily basis in accordance with clause 5(4)(a), provided that the compliance officer is otherwise satisfied that the Company remains in compliance with the capital adequacy condition contained in clause 4.
(4) From the commencement of this notice until 31 January 2012, the Company is not required to submit monthly reports to its Auditor. For the avoidance of doubt, the Company is required to submit to its Auditor, during the first 10 working days of February 2012, a monthly report relating to the month of January 2012.
(5) The certificate attached to the first monthly report submitted by the Company to its auditor must relate to the period from the commencement of this notice to the last day of the month in respect of which that report is submitted.
Dated at Wellington this 25th day of October 2011.
ELAINE CAMPBELL, Head of Compliance Monitoring, Financial Markets Authority.