Settlement process - New Zealand

Settlement cycles

Settlement flow

NZClear

NZCSD settlement is based on the Bank for International Settlement (BIS) model 1 (gross simultaneous settlement of securities and funds).

Transactions (including equity trades that do not involve brokers) are processed by the seller entering the details of the trade directly into the NZClear system (this can be achieved by straight through processing) and the counterparty entering their side of the transaction. Trades can be submitted to the NZClear system in two ways: by manual data entry and by Swift interface.

The system electronically matches the transaction and processes it on settlement day between 9.00am and 4.45pm. The system checks that:

1. The seller has sufficient securities in their securities account to deliver the number of securities intended. If there are sufficient securities in the seller's securities account, the number of securities to be delivered is then reserved or blocked thereby making them available for delivery when the seller and its bank has transferred the cash required for that trade.
2. The buyer has sufficient funds or credit in their cash account in the NZClear system which is provided by their bank. If the purchaser has sufficient cash and/or limit with its bank, the cash component of the transaction is then passed through the central bank's real time payment system, ESAS. Provided the buyer's bank has sufficient funds in its settlement account at the central bank, the transaction settles immediately in ESAS and NZClear. If the buyer's bank does not have sufficient funds, settlement of the transaction will be delayed pending the bank providing the funds.

NZClear participants who don't have an ESAS account can settle transactions involving cash settlement (i.e., DVP trades until 4.45pm). NZClear participants who have an ESAS account can settle DVP transactions until 8.30am the following morning (which coincides with the end of the previous settlement day in ESAS). All FOP transactions can settle up to 8.30am the following day.

NZX

The processing cycles for equities and debt securities on the NZClear system are virtually identical. The only variation is the requirement for broker-to-broker trades to be processed outside NZClear using NZX’s CCP system. As a result, equity trades are settled on both the NZClear system (where custodians have their securities) and the NZX CCP.

Broker-to-Broker Settlement

The settlement of on-exchange trades for equities traded by brokers is required under NZX rules to be processed on NZX's CCP system. This only entails the settlement of transactions between brokers, as distinct from broker-custodians transactions which settle in the NZClear system.

The process involves the securities being uplifted out of the NZCSD, i.e., transferred from the NZCSD to the broker, so that they can be withdrawn from the depository and processed on NZX's CCP where securities and cash are processed by New Zealand Clearing Corporation Limited (NZC). An electronic registry interface (RI) allows for the automated movement of securities between NZCSD and NZX's CCP and NZX's depository.

Registration

Securities held in the NZCSD are registered in the name of the New Zealand Central Securities Depository Limited.

Stamp duty

No stamp duty is payable in New Zealand.

Penalties (buy-ins etc.)

Buy-ins are very rare at the NZX. Buy-ins can be invoked at the discretion of the NZX. If an on-exchange trade remains unsettled after 4 business days SD, a buy-in will be conducted on SD+5.

Buy-Ins Penalties and Other Costs Details
Penalties for late delivery are charged on a cumulative daily basis of New Zealand Dollar (NZD) minimum 659 or 6bps per day until the trade is settled. A buy-in fee of NZD 1000 and close out fee of NZD 1000 may also be incurred.

For off-exchange trades the counterparties are left to make their own arrangements on the failed trade and any compensation is by way of interest payments according to a market formula.