Release of NZX obligations annual review

  • Legal update

    28 June 2022

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Today the FMA published its NZX market operator obligations annual review. The review concluded that NZX has complied with its licensed market operator obligations over the last year and implemented its action plan successfully. The FMA found that this has significantly improved the stock exchange’s technology capabilities.

Links to the NZX market operator obligations review and the media release are available here and here.

What does it cover?

The objective of the FMA’s review is to report on NZX’s success in meeting its obligations as a holder of a market operator licence.The review covers the period between 1 January to 31 December 2021.

FMA findings

The FMA’s overall assessment identified:

  • There had been a notable investment in people, processes, and systems. The recruitment of experienced employees and design of new key roles resulted in an uplift in capability.
  • Improvements to technological maturity, system sustainability, resilience and risk capability. NZX’s continued enhancement and maintenance focus was acknowledged as a contributor to these improvements.
  • Market participant feedback identified NZX’s improved engagement with the industry through relationship management, the Technology Working Group and the development of an open dialogue.
  • There has been a downward trend in market-impacting incidents. The FMA noted a significant incident on 5 August 2021, where there was an error leading to a market halt as it disconnected multiple participants.  In response, NZX had provided the FMA with an action plan, which the FMA said was successfully implemented and executed.
  • NZ RegCo (NZX’s frontline regulator) worked well through its first full year, and displayed a suitable level of independence from NZX.
  • NZX fully implemented and agreed actions following the FMA’s 2021 targeted review.

The FMA made four recommendations to NZX in its review on:

  • Risk management – NZX should continue to build and embed its second line of defence, ensuring it is robust and independent.
  • Technology – NZX should continue developing its IT strategy, while assessing IT’s resilience, risk posture and mitigation plans. The FMA also recommended NZX continue its focus on the integration of standards with market participants and delivery on its continuous improvement plan.
  • Preparing for significant market events – NZX and NZ RegCo should continue to work on its Crisis Management Framework.
  • Timeliness of referrals to the NZ Markets Disciplinary Tribunal – where referrals are not compliant with target service levels, NZ RegCo should consider how the process can be made more efficient.
Our view

NZX has been resilient through another pandemic year and shown committed engagement with the FMA, including through this review process. This should stand NZX in good stead through potentially testing market conditions ahead.

What next?

If you have any questions in relation to the FMA’s annual review or NZX’s obligations, please contact one of our experts.

This article was co-authored by Elise Plunket, a Law Clerk in our Financial Services team.