This notice, which comes into force on the day after the date of its notification in the Gazette, declares that certain products offered by Velocity Trade Limited are agreements to which Part 3 of the Securities Markets Act 1988 applies. The products are particular kinds of contracts for difference in respect of shares and other securities.

Part 3 of the Securities Markets Act 1988 is about futures contracts. The definition of futures contracts includes agreements that the Securities Commission declares, under section 37(7) of that Act, to be agreements to which Part 3 applies. The Securities Commission considers that it is appropriate to make the declaration for the following reasons:

• the particular contracts for difference in respect of shares and other securities (the products) dealt with in the notice are settled otherwise than by delivery, which is a key characteristic of commodity futures contracts under New Zealand law. This means that the contract provides for the obligation of each party to the contract to be met by some means other than by physical delivery of the commodity that is the subject of the contract, in this case the shares or securities. Each party’s obligation, in practice, is met either by payment or receipt of a settlement amount. This amount is the difference between the agreed price for the contract and the actual market price of that commodity on the date that the futures contract expires:

• the products are also synthetic in nature because, although the contract is valued by reference to a share or other security, it does not confer any right on the buyer to ever receive the shares or securities. The value of the contract at any time is determined by the difference between the price of the underlying share or security when the contract was entered into and the actual price of the share or security at the time of valuation:

• because the products are synthetic and settled otherwise than by delivery, the disclosure requirements (about Velocity Trade Limited) in terms of the Securities Act 1978 do not provide the best regulatory solution for the products:

• the declaration provides certainty in the market as, although the products have the characteristics of a futures contract, there is doubt about whether under New Zealand law various derivative products (in particular, those where the underlying asset is a company share or security) should be treated as securities, and so regulated under the Securities Act 1978, or as futures contracts, and so regulated under the Securities Markets Act 1988:

• the declaration enables the products to be regulated in the same manner as futures contracts under New Zealand law.