NZX clearing house system gets the green light

The Stock Exchange has the green light from regulators to start operating its new clearing house system on September 6.

Approval or "designation" has been given by the Reserve Bank and the Securities Commission to the settlement system for the new clearing house, which will process and safeguard all trades.

The move gives statutory backing to the settlement system which means transactions cannot be unwound in the event that a participant, such as a brokerage, fails.

NZX spokeswoman Rowan Macrae said it was a "very big day for New Zealand markets because world-class technology is in place in New Zealand markets and it also means that we can enable the launch of other traded products".

The clearing house will up-grade the exchange's technology and allow it to trade in deri-vatives such as milk powder futures.

It was meant to be launched two months ago but was held up by what the exchange called "regulatory hurdles".

NZX boss Mark Weldon has said derivatives could match the exchange's equities business within five years.

Trading in whole-milk powder futures will begin next month, followed by AMF (anhydrous milk fat) powder and possibly skim milk. Equity options are also being considered.

Ten participants have signed up for both the settlement and clearing house systems, mostly New Zealand brokerages although Macrae said there had been international interest.

After a trade, the clearing house will assume counterparty risk for the two parties involved while it is processed and then "settled".

Until now the only approved settlement systems in New Zealand have been the Reserve Bank's own Austraclear system mainly used by banks, and that of international central bank funder, CLS Bank International.

- © Fairfax NZ News