Consultation Paper Shortening the settlement cycle: The move to T+2 Proposed rule amendments. 30 July 2015

Transcription

1 Consultation Paper Shortening the settlement cycle: The move to T+2 Proposed rule amendments 30 July 2015

2 Contents Introduction and request for comments Background Move date, transition and further communication Part I - Proposed rule amendments to shorten settlement cycle Part II - Proposed rule amendments to shorten Ex Period CONSULTATION PAPER THE MOVE TO T+2 PROPOSED RULE AMENDMENTS 2 of 8

3 Introduction and request for comments NZX Limited (NZX) is moving to a shortened trading settlement cycle from the current trade date plus three business days settlement (T+3) to a trade date plus two business days settlement (T+2) for cash market trades on its markets. The background and reasons for the proposed change, the key impacts resulting from the change and the proposed timetable for implementation of the change, were set out in a consultation paper dated 12 November 2014 (Consultation Paper). The feedback received in response to the Consultation Paper is set out in a consultation response paper dated 30 April 2015 (Consultation Response Paper). In the Consultation Response Paper, NZX confirmed its intention to move to T+2 for settlement of cash markets trades on its markets. Shortening the settlement cycle from T+3 to T+2 received strong support from respondents, primarily so that NZX will stay aligned with ASX Limited (ASX) in relation to settlement cycles. As outlined in the Consultation Paper and Consultation Response Paper, ASX intends to move to T+2 in March NZX is now consulting on the rule changes required to implement the change. This consultation seeks your submissions and feedback on the proposed rule changes required to implement T+2 and a consequential reduction in the ex-period for corporate actions. Please provide any feedback on the proposed rule amendments by 11 September 2015 to the address detailed below. If you have any queries in relation to this paper, please contact: Hamish Macdonald NZX Head of Policy Phone: (09) consultation@nzx.com CONSULTATION PAPER THE MOVE TO T+2 PROPOSED RULE AMENDMENTS 3 of 8

4 Background Strong support for change As set out in the Consultation Response Paper, all submitters were broadly supportive of the proposal to move to T+2. The general view within submissions was that the potential risks and impacts identified in the Consultation Paper can be dealt with through clear communication about the move to T+2 and changes to market practice. The risks and impacts identified were not seen to outweigh the benefits of the proposal, with all submissions very supportive of New Zealand maintaining alignment with the ASX and the broader international trend to shorten settlement cycles. Rule changes to give effect to the proposals A number of minor changes to the NZX Main Board/ Debt Market Listing Rules, NZAX Listing Rules, FSM Rules, NXT Market Rules (together, the NZX Listing Rules ) and the Participant Rules are required to give effect to a shortened settlement cycle. NZX also proposes to reduce the Ex Period for corporate actions by one business day to align it with the reduced settlement cycle. These rule changes were discussed in the Consultation Paper and the details of the changes are outlined below. NZX will ensure that these rule changes take effect at the same time as the move to T+2 currently scheduled for March As the NZX Listing Rules and the Participant Rules form part of NZX s Market Rules, the changes set out in the Consultation Paper will need to be approved by the Financial Markets Authority. 1 The proposed changes to the FSM Rules will also require the consent of Fonterra. 2 Coordination with Australia ASX has confirmed a decision to implement a T+2 settlement cycle for cash equities in March ASX has also confirmed a decision to move the batch settlement cut off by 1 hour from am to am. NZX has received indications from participants that a later settlement batch for ASX may affect the ability for participants to move securities between Australia and New Zealand in a timely manner. At this stage, NZX does not propose to alter its batch settlement times. ASX has established a broad based Market Implementation Group working towards full industry readiness for implementation of T+2 in March NZX attends the ASX Market Implementation Group in order to remain up to date regarding developments in relation to ASX s proposed move and gave a presentation to this forum in June 2015 on NZX s own changes. NZX proposes to align its transition to T+2 with ASX and will continue to engage with ASX regarding coordination of implementation. 1 Section 328 of the Financial Markets Conduct Act FSM Rule CONSULTATION PAPER THE MOVE TO T+2 PROPOSED RULE AMENDMENTS 4 of 8

5 Move date, transition and further communication NZX intends to align with ASX s proposal for system changes to be implemented on the weekend of 5-6 March 2016 so that trading on a T+2 settlement cycle can commence on Monday, 7 March NZX will communicate further with participants in relation to arrangements for transition in due course. 3 NZX will provide further updates in relation to the proposal to move to T+2 on a dedicated section of its website. Transition management T+2 settlement The transition to T+2 will result in one settlement day where the last day of trades undertaken under T+3 and the first day of trades undertaken under T+2 will all be required to be settled on the same day. Settlements for the two days will be netted to one obligation per currency and line of securities. NZX proposes to conduct testing of settlement of two days of trades within BaNCS in advance of a transition. NZX is also engaging with market participants in relation to cocoordinating further communication around the proposed change to a shortened settlement cycle to ensure that all participants are prepared for the change. Transition management corporate actions and the Ex Period In order to coordinate with the ASX, the proposed implementation date for the revised corporate action timetables, including the two business day Ex Period (as discussed in Part II of this paper), is Wednesday, 9 March Any impacted corporate action announced by an issuer before 9 March 2016 that sets out a record date that falls on or after 9 March 2016, should be based on the new corporate action timetables and incorporate a two business day Ex Period. Any impacted corporate action that has a record date on or prior to Tuesday, 8 March 2016 should be based on the existing corporate action timetables and incorporate a three business day Ex Period. This means that the last day that securities can be quoted on an exentitlement basis under a corporate action incorporating a three business day Ex Period is Friday, 4 March The dates and timeline discussed above are the current scheduled timeframes but may be subject to change. The ASX has also proposed an alternative date for implementation of T+2 on the weekend of March 2016 in its contingency planning. The dates for NZX s move will be confirmed closer to implementation. CONSULTATION PAPER THE MOVE TO T+2 PROPOSED RULE AMENDMENTS 5 of 8

6 Part I Proposed rule amendments to shorten settlement cycle The obligation to settle a trade within three business days is set out in the Participant Rules. The parties to a trade (other than a crossing) are deemed to have contracted to settle that trade on the third business day after the day on which the trade was executed or reported via the trading system (rule in respect of securities quoted on the NZX Main Board, Debt Market and Alternative Market, rule in respect of FSM shares and rule in respect of securities quoted on the NXT Market). In order to implement a T+2 settlement cycle, NZX will amend the Participant Rules referred to above, so that the parties to a trade are deemed to have contracted to settle a trade on the second business day after the day on which the trade was executed or reported via the trading system. The Participant Rules also permit parties to an off-market trade to agree to settle the offmarket trade on the first or second business day after the day on which the off-market trade was reported via the trading system. NZX is not proposing any changes to this as a result of moving to a T+2 settlement cycle. As the Participant Rules form part of NZX s Market Rules, the changes set out above will need to be approved by the Financial Markets Authority. Please see Schedule 1, which shows the proposed changes to the Participant Rules to shorten the settlement cycle to T+2. CONSULTATION PAPER THE MOVE TO T+2 PROPOSED RULE AMENDMENTS 6 of 8

7 Part II Proposed amendments to Rules and Procedures to reduce Ex period NZX proposes to reduce the Ex Period for corporate actions by one business day to align it with the reduced settlement cycle. This will require minor rule changes to the NZX Listing Rules and the Participant Rules. As the NZX Listing Rules and the Participant Rules form part of NZX s Market Rules, the changes set out below will need to be approved by the Financial Markets Authority. NZX will also need to seek consent of Fonterra in relation to the proposed amendments to the FSM Rules. 4 NZX Listing Rules Ex Date is defined in the NZX Listing Rules to mean, in relation to a benefit, the second record date for that benefit. NZX will amend the definition of Ex Date to mean the first record date for that benefit. The appendices to the NZX listing rules titled Timing of Events Affecting Securities set out the timing requirements for various corporate actions. NZX will amend the Ex Date section of these appendices so that they refer to rights commencing quotation on the first business day before the record date, instead of the second record date. NZX Participant Rules NZX Participant Rule states that where NZX is notified of a record date in relation to a corporate action, NZX will quote the relevant security on an ex basis on the business day which is two business days before the record date. NZX will amend rule to refer to NZX quoting a security on an ex basis on the business day which is the first record date. Please see Schedule 2, which shows the proposed changes to the NZX Listing Rules and Participant Rules to shorten the Ex Period. 4 FSM Rule CONSULTATION PAPER THE MOVE TO T+2 PROPOSED RULE AMENDMENTS 7 of 8

8 Schedule 1 Proposed rule amendments to shorten settlement cycle NZX Participant Rules Rule Current Effect of change to T+2 New The parties to a Trade (other than a Crossing) in Securities quoted on the NZSX, NZAX or NZDX that are Approved Product and legal title to which can be transferred through the Legal Title Transfer System are deemed to have contracted to settle that Trade on the third Business Day after the day on which the Trade was executed on or reported via the Trading System, except that the parties to an Off Market that Off-Market Trade on the first or second on which the Off-Market Trade was reported via the Trading System The parties to a Trade (other than a Crossing) in FSM Shares are deemed to have contracted to settle that Trade on the third on which the Trade was executed on or reported via the Trading System, or such other Business Day as determined by NZX in respect of a Trade or class of Trades, except that the parties to an Off-Market that Off-Market Trade on the first or second on which the Off-Market Trade was reported via the Trading System Parties to a Trade will be deemed to have contracted to settle that Trade on the second that it was executed or reported Parties to a Trade will be deemed to have contracted to settle that Trade on the second that it was executed or reported The parties to a Trade (other than a Crossing) in Securities quoted on the NZSX, NZAX or NZDX that are Approved Product and legal title to which can be transferred through the Legal Title Transfer System are deemed to have contracted to settle that Trade on the third second Business Day after the day on which the Trade was executed on or reported via the Trading System, except that the parties to an Off Market that Off-Market Trade on the first or second Business Day after the day on which the Off-Market Trade was reported via the Trading System The parties to a Trade (other than a Crossing) in FSM Shares are deemed to have contracted to settle that Trade on the third second on which the Trade was executed on or reported via the Trading System, or such other Business Day as determined by NZX in respect of a Trade or class of Trades, except that the parties to an Off-Market that Off-Market Trade on the first or second Business Day after the day on which the Off-Market Trade was reported via the Trading System CONSULTATION PAPER THE MOVE TO T+2 PROPOSED RULE AMENDMENTS 8 of 8

9 The parties to a Trade (other than a Crossing) in Securities Quoted on NXT Market are deemed to have contracted to settle that Trade on the third Business Day after the day on which the Trade was executed on or reported via the Trading System, or such other Business Day as determined by NZX in respect of a Trade or class of Trades, except that the parties to an Off-Market that Off-Market Trade on the first or second on which the Off-Market Trade was reported via the Trading System Parties to a Trade will be deemed to have contracted to settle that Trade on the second that it was executed or reported The parties to a Trade (other than a Crossing) in Securities Quoted on NXT Market are deemed to have contracted to settle that Trade on the third second on which the Trade was executed on or reported via the Trading System, or such other Business Day as determined by NZX in respect of a Trade or class of Trades, except that the parties to an Off-Market that Off-Market Trade on the first or second Business Day after the day on which the Off-Market Trade was reported via the Trading System CONSULTATION PAPER THE MOVE TO T+2 PROPOSED RULE AMENDMENTS 9 of 8

10 Schedule 2 Proposed rule amendments to shorten Ex Period NZX Main Board/Debt Market Listing Rules Rule Current Effect of change to T+2 New Definition of Ex Date means the second for that benefit, unless NZX determines otherwise The Ex Date will now become NZX Main Board/Debt Market Listing Rules Appendices means the second first for that benefit, unless NZX determines otherwise Appendix 8: Timing of Events Quotation on the 2 nd Rights commence quotation on Quotation on the 1 st 2nd NZAX Listing Rules Definition of Ex Date means the second for that benefit, unless NZX determines otherwise NZAX Listing Rules Appendices The Ex Date will now become means the second first for that benefit, unless NZX determines otherwise Appendix 5: Timing of Events Quotation on the 2 nd Rights commence quotation on Quotation on the 1 st 2 nd NXT Market Procedures Definition of ex date means the second record date for that benefit unless NZX determines otherwise The ex date will now become means the second first record date for that benefit unless NZX determines otherwise CONSULTATION PAPER THE MOVE TO T+2 PROPOSED RULE AMENDMENTS 10 of 8

11 FSM Rules Definition of Ex Date means the second for that entitlement, unless NZX determines otherwise The Ex Date will now become means the second first for that entitlement, unless NZX determines otherwise FSM Appendices Appendix 4: Timing of Events Quotation on the 2 nd Rights commence quotation on Quotation on the 1 st 2nd NZX Participant Rules Rule Current Effect of change to T+2 New NZX will quote the Security on an ex basis on the Business Day (referred to as the ex date ) which is two Business Days before, unless NZX determines a different date as the ex date and notifies that date to Trading Participants. For the avoidance of doubt, the security will be quoted ex on the ex date during the period to and including the. For example, if the Record Date is 5.00 p.m. on a Friday, then the relevant Security will be quoted ex from 8.00 a.m. on the Wednesday preceding the until 5.00 p.m. on A Security will be quoted on an ex basis, one Business Day before (unless NZX determines a different ex date and Trading Participants are notified) NZX will quote the Security on an ex basis on the Business Day (referred to as the ex date ) which is two one, unless NZX determines a different date as the ex date and notifies that date to Trading Participants. For the avoidance of doubt, the security will be quoted ex on the ex date during the period to and including the. For example, if is 5.00 p.m. on a Friday, then the relevant Security will be quoted ex from 8.00 a.m. on the Wednesday Thursday preceding until 5.00 p.m. on the Record Date CONSULTATION PAPER THE MOVE TO T+2 PROPOSED RULE AMENDMENTS 11 of 8