A financial product market is a facility where financial products are bought or sold, or where offers or invitations to buy or sell financial products are made. S309 of the Financial Markets Conduct Act (the Act) sets out what is considered a financial product market and what is not.
Licensing and registration
Anyone operating a financial product market must be registered on the Financial Service Providers Register (FSPR). You must also be licensed unless the market is exempt. Exemptions may apply if fewer than 100 transactions occur in a financial year, or if the value of products traded in a financial year is less than $2 million. The full list of exemption conditions is found in s312 of the Act.
The Minister of Commerce and Consumer Affairs issues financial product market licences, with advice from us. The Minister and the FMA must consider the following before issuing a licence to a financial product market operator:
The nature of the activities proposed.
The market’s proposed size.
The nature of the financial products dealt with.
The likely participants (either directly or by using the services of participants).
The technology used in operating the market.
The Minister must also be satisfied that an applicant will be able to meet the general obligations of licensed market operators, found in s314 of the Act.
A market operator must not operate markets that are not specified in a licence, but a licence may cover more than one financial product market.
The standard conditions for a licence include:
The financial product market covered by the licence.
The clearing and settlement arrangements for the market.
The arrangements for enforcing the rules of the market.
The Minister may also place other conditions on the licence. The market operator can subsequently request changes to the conditions of its licence, or the Minister may vary the conditions on his or her own initiative.
A licence may be suspended or cancelled under certain circumstances, set out in s323 of the Act.
How to apply for a licence
A person who wants a licence to operate a financial product market should apply to us in writing. We will assess your application and ensure you have provided all relevant information, before giving the Minister advice about the application, which we must do within a reasonable time.
The information included with your application should clearly demonstrate:
How the proposed market will meet all of the general obligations set out in s314 of the Act.
How the proposed market will meet the criteria in s316 of the Act.
Whether you have the skills, expertise, procedures and capacity to satisfy each of the obligations on a continuing basis.
That you are a body corporate and have registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008.
A licensed market cannot be operated without market rules, and s328 of the Act sets out what those rules must include.
Any application for a financial product market licence needs to include the proposed rules for the market. It also needs a description of any consultation that has been carried out about the rules (public or targeted); details of any relevant international best practice; and evidence that the rules meet what’s required under s328 of the Act.
For more information on the approval of market rules, see s327 to 336 of the Act.
As a market operator, you must make sure your licensed markets operate in a fair, orderly and transparent way (s314), and have arrangements in place for the following:
handling conflicts between your commercial interests and fair, orderly and transparent markets
making market disclosures available
monitoring conduct on the markets
enforcing your market rules.
You must also ensure you have the resources required to operate your markets properly, and you are able to continue to meet any conditions of your licence.
As a market operator you are required to provide the FMA with a periodic self-assessment on how well you have complied with your obligations during that period (s337).
We must also carry out periodic reviews of your compliance and publish our findings in a report. If we find that you are not meeting your general obligations, we can ask you to put an action plan in place.
As a market operator you are obliged to notify us of certain events, such as when you take disciplinary action for breaches of your market rules, or when you suspect someone may have breached the legislation. You must also give us information and assistance when we need them to carry out our regulatory role.
As a market operator you need to provide us with a periodic self-assessment on how well you have complied with your obligations during that period (s337).
We need to carry out periodic reviews of your compliance and publish our findings in a report. If we find that you are not meeting your general obligations, we can ask you to put an action plan in place.
As a market operator, you are obliged to notify us of certain events, such as when you take disciplinary action for breaches of your market rules, or when you suspect someone may have breached legislation. You must also give us information and assistance when we need them to carry out our regulatory role.