This notice, which comes into force on 1 June 2015 and is revoked on 30 November 2015, exempts derivatives issuers from regulation 244 of the Financial Markets Conduct Regulations 2014 (the Regulations). Regulation 244 relates to the responsibilities of a derivatives issuer in the event of a shortfall of the amount of money that should be in the trust account maintained for the purpose of holding derivatives investor money on trust.

The Financial Markets Authority (the FMA), after satisfying itself as to the matters set out in section 557 of the Financial Markets Conduct Act 2013 (the Act), considers it appropriate to grant the exemption because—

• the Regulations require a derivatives issuer to reconcile its records of the amount of derivatives investor money with the amount of money in its trust account using a cash-based approach. Where a shortfall of funds is calculated, the derivatives issuer must top up the trust account. The FMA is aware that this type of reconciliation may not be appropriate for some types of derivatives-related activity; and

• authorised futures dealers that were dealers immediately before 1 December 2014 may continue to comply with the Futures Industry (Client Funds) Regulations 1990 until 1 December 2015. They are not required to reconcile their trust accounts using a cash-based approach. The exemption provides all derivatives issuers with a temporary alternative method of reconciliation and compliance with the Regulations until 1 December 2015; and

• the FMA understands that the Government is considering an amendment to the Regulations to provide for alternative methods of reconciliation for derivatives issuers. The exemption provides flexibility to derivative issuers in relation to the derivatives investor money reconciliation requirements in the Regulations until the Government has determined whether additional regulations are required to deal with these matters. As such, the FMA is satisfied that the granting of the exemption is desirable in order to promote one of the purposes of the Act, which is that it will enable derivatives issuers to avoid unnecessary compliance costs; and

• the conditions replicate the requirements of regulation 244 and require a derivatives issuer to reconcile its trust account and, if the amount required to be in the trust account exceeds the amount of money in the trust account, the derivatives issuer must deposit an amount equal to the shortfall. The conditions also require a derivatives issuer to provide the FMA with written acknowledgement from the derivatives issuer’s bank that it is on notice that all money in the trust account is, or is being treated as, derivatives investor money for the purposes of the Regulations. As such, the FMA is satisfied that the exemption is not broader than is reasonably necessary to address the matters that gave rise to it.