Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill

Thank you, Madam Chair. I think you’ve just stolen my first-pass speech. I don’t think I’m going to be able to drag many people back to Parliament TV as we discuss the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill, but it is an important piece of legislation. Just to give a little bit of context in plain English for this, our banks here in New Zealand do fund their activities in part by raising money offshore, and to protect against exchange rate risk associated with borrowing money overseas, they do enter into financial contracts called derivatives. I understand also that large public sector entities—for example, the New Zealand Superannuation Fund and ACC—also rely on these derivatives for their activities, as do many in the private sector as well.

The banks, the super fund, and ACC are currently facing an issue around new rules introduced by the G20 countries relating to derivatives. They require that parties to certain types of these arrangements also exchange security, and this security is also referred to as collateral or a margin, which is in the aptly named title of the bill. So if one party defaults in that contract or becomes insolvent, the other party can call on or enforce a margin agreement and is therefore protected to some extent from the party’s financial distress. Part 1 of the bill amends various Acts here in New Zealand to ensure that parties to these derivative-type contracts with overseas entities aren’t limited or prevented from exercising rights to enforce those security interests over collateral that is posted by the derivatives.

Can I acknowledge the Finance and Expenditure Committee (FEC), that deliberated over this piece of legislation. They made three changes to the bill: specifically, removing an amendment that was intended to clarify that an outright transfer of collateral does not create a security interest for the purposes of Acts; requiring that before a counter-party to a qualifying derivative can also exercise their rights over collateral, the collateral must be in their position or control; and, finally, amending some transitional provisions so that amendments in Part 1 also apply to other derivatives entered into before the amendments come into force.

So can I thank the select committee for that and particularly a number of members who worked on both sides of the House to ensure that this piece of legislation was as good as it can be, I think. I want to acknowledge certainly Duncan Webb on my side, who came to me as a member of FEC to sort a number of issues. So with that I’ll leave it to any of the members of that committee that may want to make a contribution, or not.

The question was put that the amendments set out on Supplementary Order Paper 294 in the name of the Hon Kris Faafoi to Part 1 be agreed to.

Amendments agreed to.

Part 1 as amended agreed to.

Part 2 Amendments relating to financial benchmarks