Foreign margin requirements for OTC derivatives
On 30 August 2019 the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Act 2019 received Royal assent. The Act amends aspects of New Zealand law which impede compliance with foreign margin requirements for over-the-counter derivatives.
About the Act
The Act amends several pieces of legislation to address aspects of New Zealand law which impede compliance with foreign margin requirements for over-the-counter (OTC) derivatives.
These include amendments to:
- the Reserve Bank of New Zealand Act 1989
- the Corporations (Investigations and Management) Act 1989
- the Companies Act 1993
- the Personal Property Securities Act 1999
- the Property Law Act 2007
- the Receiverships Act 1993.
What the Act does
The amendments mean that derivatives counter parties are able to enforce their security interest over margin without delay, and ahead of other creditors, in the event of the other party to the derivative defaulting. More specifically, they can:
- carve out the claims of these derivatives counter parties from general moratoria on creditors’ claims that apply in statutory management and voluntary administration
- ensure that when these derivatives counter parties enforce their security interest over posted margin, the claim to enforce that security interest ranks ahead of other potential claims under the Companies Act 1993, Personal Property Securities Act 1999, Property Law Act 2007 and Receiverships Act 1993.
When the amendments in the Act apply
The amendments only apply for derivatives contracts that meet certain requirements, and where those contracts were entered into by prescribed entities. The prescribed entities are registered banks, ACC, the New Zealand Superannuation Fund, and central counter parties that are designated settlement systems under Part 5C of the Reserve Bank of New Zealand Act 1989.
These constraints on the amendments are designed to:
- minimise adverse impacts on the rights of other creditors
- ensure that the amendments do not adversely affect the coherence of existing corporate insolvency and rehabilitation regimes, or personal property securities law.
Visit the NZ Parliament website(external link) to view the history of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Act 2019.
Read other key documents behind the policy decisions and the introduction of the Act:
- Cabinet paper - A New Zealand policy response to foreign margin requirements for [PDF 509KB]
- Impact Summary: A New Zealand response to foreign derivative margin requirements [PDF 612KB]
- Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill – Approval for Introduction [PDF 453KB]
- Cabinet Economic Development Committee Minute of Decision: Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill: Policy Approval and Approval for Introduction [PDF 161KB]
- Consultation document: A New Zealand response to foreign margin requirements for OTC derivatives [PDF 712KB]