Proposals for additional transactions to be included as futures contracts under the Securities Markets Act

The Securities Commission has released a discussion paper proposing to declare certain derivative contracts, known as contracts for difference, to be futures contracts under the Securities Markets Act 1988 (the Act).

A contract for difference (CFD) is a derivative contract under which an investor can receive the economic benefits of holding an underlying asset without actually having ownership of that asset. The price of the CFD is derived from the underlying asset and the parties to the contract agree to settle the difference between the acquisition and disposal price in cash. Therefore, there is no delivery of the underlying asset.

The Commission's proposal is in response to doubt in the market about how the law should deal with CFDs in respect of shares and other securities. The effect of the Commission's proposal would be that people dealing in these contracts would need to be authorised as futures dealers under the Act.

In addition, the Securities Commission has resolved to declare margined foreign exchange contracts or "rolling spots" to be futures contracts under the Act.

The declaration was first proposed in a discussion paper released last year.

As a result of the planned declaration, people dealing in margined foreign exchange contracts will need to obtain authorisation under the Act.

The Commission shortly intends to release for consultation a draft policy statement that provides guidance on applying for a futures dealer's authorisation and includes proposed capital adequacy requirements for futures dealers.

Visit the Security Commission's website, where a copy of the draft policy statement is available.

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