Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 5

The major risks in Securities Systems should be mitigated by five key measures:

• the implementation of real delivery versus payment
• the adoption of a trade date plus one settlement cycle in a form that does not increase operational risk.
• the minimisation of funding and liquidity constraints by enabling stock lending and borrowing, broad based cross collateralisation, the use of repos and netting as appropriate
• the enforcement of scrip-less settlement
• the establishment of mandatory trade matching and settlement performance measures.

1.	Does the market use DvP settlement procedures in accordance with one of the recognised BIS models? If so, which one? If the model is not BIS model 1, are there plans to move to this model?	FASTER: Yes - BIS Model I is used. Simultaneous, Final and Irrevocable Delivery Versus Payment (SFIDVP) is used for all FASTER settlements. Funding uses RTGS (Real-Time Gross Payments System) which is operated by the Reserve Bank of New Zealand and gives immediate title to cleared funds. NZCSD: The Austraclear system is a BIS Model I as settlement occurs on a simultaneous, final, irrevocable and real time gross settlement basis.
2.	Does the market have a rolling settlement cycle of T+3 or shorter for all exchange traded instruments?	FASTER: Trades under NZD 100,000 in value are determined to settle on T+3 while the under this value can settle between T+0 and T+3 (seller initiated settlement). The overall FASTER settlement average is currently 1.1 days. NZCSD: All equity transactions occur on a T+3 rolling settlement basis whilst debt transactions occur on a T+2 settlement basis.
3.	Could the market reduce the current settlement period to T+2 or below, without increasing fails rates? If so, how would this be achieved, and what plans are there to shorten the existing settlement cycle?	Yes, most likely. T+2 is probably achievable today for all trades now. T+0 or T+1 is routinely being achieved for retail trades today. However for trades where there is an overseas institutional seller using a global/local custodian arrangement anything less than T+2 is not currently considered achievable. Participants sight our timezone.
4.	Is matching of trade details achieved on trade date, at least for direct market participants; and by trade date plus one for indirect participants?	The NZSE currently facilitates only Direct Market Participants (brokers). All trade matching and reporting is completed on T+0 (in fact within seconds/minutes of execution). As we run a retail auction all trades are considered Locked-In when they are matched or reported (i.e. separate confirmation or affirmation is not required).
5.	Is the depository scrip-less, and, if not, is it working to enable scrip-less settlement?	The majority of NZSE listed instruments are scripless (dematerialised). A small percentage of Fixed Interest instruments are not and must be settled external to FASTER using paper transfers (estimated to be less than 1% of trades).
6.	Does the market allow partial settlements?	Yes, but only with investor permission.
7.	Can the depository accommodate same day turnarounds?	Yes.

Bank of International Settlements (BIS) Settlement Models

Model 1:	Systems that settle transfer instructions for both securities and funds on a trade-by-trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment).
Model 2:	Systems that settle securities transfer instructions on a gross basis, with final transfer of securities from the seller to the buyer (delivery) occurring throughout the processing cycle, but settle funds transfer on a net basis, with final transfer of funds from the buyer to the seller (payment) occurring at the end of the processing cycle.
Model 3:	Systems that settle transfer instructions for both securities and funds on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle.