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 (Intercontinental Financial Services Corporation Limited) Notice 2011.
(2) This notice comes into force on the day after its notification in the New Zealand Gazette.
(3) This notice expires on the close of 30 November 2013.
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.
adviser means a director, employee or agent of the Company who provides, or may provide, futures adviser services to a client.
approved counterparty means
(a) a registered bank;
(b) an overseas bank;
(c) a company which is an authorised deposit-taking institution under the Banking Act 1959 (Commonwealth of Australia);
(d) a company which is a futures commission merchant registered under the Commodity Exchange Act (United States of America);
(e) a company which is registered as a BIPRU 730k firm or a BIPRU 150k firm with the United Kingdom Financial Services Authority; or
(f) a company which is registered with the Monetary Authority of Singapore and fulfils all the criteria under the Securities and Futures Act (Republic of Singapore).
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 6(1) and (2) of this notice.
Company means Intercontinental Financial Services Corporation Limited.
disclosure document means a written document that describes and contains the offer of, and relates specifically to, a particular class, or particular classes, of specified futures contracts.
futures adviser service means a service provided by or on behalf of the Company in relation to a specified futures contract that would, but for section 14(1)(n) of the Financial Advisers Act 2008, constitute financial advice or a discretionary investment management service under that Act.
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 paragraph (a) or (b).
personalised futures adviser service means a futures adviser service that would, but for section 14(1)(n) of the Financial Advisers Act 2008, constitute a personalised service under that Act.
prescribed liquid funds amount is the amount specified in clause 5(3).
qualified auditor has the same meaning as in section 2C of the Securities Act 1978.
recognised exchange means an authorised futures exchange or any exchange in a country other than New Zealand which is authorised by the laws of that country to operate as a futures exchange.
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; and remunerated has a corresponding meaning.
retail client has the meaning given to that term by the Financial Advisers Act 2008.
specified futures contract means a futures contract, other than a futures contract which is made on or effected through a recognised exchange, to which the Company is, or intends to be, a party and that is described in the disclosure document.
surplus liquid funds has the meaning set out in clause 5(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.
(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 complies with the requirements of clause 4 of this notice;
(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 personalised futures adviser service to any retail client in relation to a specified 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 dispute 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 takes reasonable steps to ensure at all times 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 takes reasonable steps to ensure at all times that each adviser who provides futures adviser services to a client:
(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 futures adviser services to that client, and in respect of the relevant specified futures contract;
(iii) places the interests of the client first, and acts with integrity, in providing the futures adviser services;
(iv) ensures that the client has sufficient information, in a form which enables the client to understand that information, to make an informed decision about the futures adviser service and the specified futures contracts to which that futures adviser service relates;
(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’s margin which is withdrawn from the client bank account in relation to a particular specified futures contract does not exceed the lesser of:
(i) the amount described in the disclosure document relating to that specified futures contract in accordance with clause 4(4)(d) of this notice; and
(ii) the amount of margin payable by the Company to an approved counterparty in respect of a contract entered into by the Company to back off its exposure under the specified futures contract in respect of which the client has paid that margin;
(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 5 of this notice;
(o) the Company at all times meets the reporting requirements set out in clause 6 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 that commences after this notice comes into force, give a report to the Financial Markets Authority on the extent to which it has complied with its obligations under this notice in that 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 purpose of supervision of the Company in connection with the Company’s obligations under this notice; 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 5;
(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 managers, 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; and
(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. Further conditions relating to disclosure documents-(1) The disclosure document must include information that would enable a prudent but non-expert investor to make a decision about whether to invest in a specified futures contract of that class.
(2) The disclosure document must remain up to date and continue to comply with clause 4 at all times, and may be amended by the Company at any time for this purpose.
(3) The disclosure document must state, in a prominent place, the date as at which the disclosure document was prepared, and the date of every amendment that has been made to that disclosure document.
(4) The disclosure document must contain all of the following information that is applicable to the class or classes of specified futures contracts to which the disclosure document relates, and must continue to contain all of the following information at the time the specified futures contract is entered into:
(a) a description of the key terms and features of that class or those classes of specified futures contracts;
(b) the name and contact details of the Company;
(c) a description of the amounts payable, or the method of calculating the amounts payable, by a person to the Company in respect of that class or those classes of specified futures contracts, including the consequences of failing to make any payments;
(d) a description of the amounts, or the method of calculating the amounts, of any margins, including initial margins and variation margins, payable by a person to the Company in respect of that class or those classes of specified futures contract, including the consequences of failing to pay any margin;
(e) a description of the treatment of margins, including initial margins and variation margins, payable by a person to the Company in respect of that class or those classes of specified futures contracts;
(f) a description of the types of fees or charges payable by a person, directly or indirectly, to the Company in respect of that class or those classes of specified futures contracts;
(g) a description of the rights of the Company or any other person to alter any of the fees or charges applicable to that class or those classes of specified futures contracts;
(h) a description of the nature of any amounts or returns that may be payable, or the method of calculating any amounts or returns that may be payable, by the Company to a person in respect of that class or those classes of specified futures contracts;
(i) a description of the key factors that determine the amounts or returns that may be payable by the Company to a person in respect of that class or those classes of specified futures contracts;
(j) a description of the principal risks associated with entering into that class or those classes of specified futures contracts, including any specific risk factors that apply to any one or more of the particular specified futures contracts;
(k) if it is reasonably foreseeable that, at the end of the arrangement relating to that class or those classes of
specified futures contracts, a person will have received, in total, less than the amount paid to the Company for
the specified futures contracts, a statement to this effect and a brief description of the circumstances that may produce this result;
(l) a description of the parties’ rights to alter the terms of that class or those classes of specified futures contracts;
(m) a description of the parties’ rights to terminate, cancel, surrender, or otherwise make or obtain payment of any amounts or returns in respect of that class or those classes of specified futures contracts, other than as described in paragraphs (h) and (i);
(n) a statement as to whether a person is entitled to sell his or her interest in a specified futures contract to another person and, if so, whether in the opinion of the Company there is an established market for such sales;
(o) a description of the treatment of client money or property received, held or otherwise dealt with in connection with dealing in specified futures contracts, other than as described in paragraph (e);
(p) the names or descriptions, and the addresses and business telephone numbers, of officers, employees, or agents of the Company to whom enquiries about the specified futures contracts can be made, and to whom complaints about
the specified futures contracts can be made;
(q) a statement to the effect that other information about the Company is contained or referred to in financial statements of, or relating to, the Company and where a copy of the latest financial statements may be obtained from;
(r) a statement of the type of information that is required to be, or otherwise will be, given to clients periodically;
(s) a statement describing the type of information that is required to be, or otherwise will be, available on request from the Company, and a statement explaining how a request for this information should be made;
(t) a statement whether any charge may be made for the information referred to in paragraph (s) and the amount of any charge; and
(u) any other material matters applicable to that class or those classes of specified futures contracts.
(5) If a matter specified in clause 4(4) is not applicable to the class or classes of specified futures contracts to which a disclosure document relates, the disclosure document is not required to refer to that matter, and is not required to state that the matter is not applicable.
(6) Nothing in clause 4(4) limits the information, statements, or other matters that may be contained in a disclosure document.
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 ensure that its surplus liquid funds exceeds at all times its prescribed liquid funds amount.
(3) The Company’s prescribed liquid funds amount is $1,000,000.
(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 5(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 Company 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 1 yr 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 1 yr 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.
6. Reporting requirements-(1) The Company must:
(a) appoint an auditor;
(b) appoint a compliance officer with responsibility for ensuring compliance with this 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 5.
(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 6(3) and semi-annual prospective financial statements referred to in clause 6(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 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; and
(iii) the log prepared under clause 6(5)(c) does not disclose any breach of the capital adequacy requirements in clause 5(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 5(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(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 auditor on a monthly basis;
(iii) confirm that the calculations were performed in compliance with clause 5; and
(iv) perform additional procedures, as set out in the agreed upon procedures, over the accuracy of the data used in the calculations; and
(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 6(3) or semi-annual prospective financial statements in accordance with clause 6(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 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 conditions contained in clauses 3(2)(i) and (j); and
(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 auditor 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(2);
(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; and
(g) the Company has complied with the conditions 3(3)(i) and (j) of this notice regarding handling client money (including any client money which is applied as margin in respect of a client’s contract) and property, and recording client money and property and client dealing.
(5) The Company must:
(a) calculate, in respect of 5.00pm (New York time) on each business day, by 4.00pm (New Zealand time) on the business day after the date in respect of which the calculation is made, its surplus liquid funds in accordance with clause 5 to ensure that the Company complies with clause 5(2);
(b) report to both the Financial Markets Authority and the auditor 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(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.
(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 should contain or attach all information and documents which are necessary to fully explain those circumstances.
(7) The Company must prepare management accounts every two months.
(8) 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) provide reasons when the forecast of cash flows shows a total net cash outflow in any month; and
(e) are 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 14th day of December 2011.
ELAINE CAMPBELL, Head of Compliance Monitoring, Financial Markets Authority.