The Role of NZX Clearing

Once a trade is executed on an NZX market, NZC becomes the central counterparty to both the buy and sell side of the trade through the process of novation. This structure makes the settlement system more efficient by allowing clearing Participants to net the entirety of their buy and sell trades across each day, regardless of the various counterparties involved. It also improves the integrity of the settlement system because as a central counterparty clearer NZC guarantees delivery of cash and securities, even if the underlying counterparty were to fail to deliver. The following illustration demonstrates the process of the novation and netting of two on-market trades.

Participants that hold securities within the Securities Depository may choose to lend these to Clearing Participants, allowing them to earn additional income for the beneficial owners. The Clearing House acts as the central counterparty to these transactions also. The roles of the Clearing House and the Securities Depository are outlined below.

The Clearing House (NZC):

Captures, validates and novates trades to act as a counterparty to every trade on NZX's markets
Performs risk management functions in line with global standards
Nets Clearing Participants' settlement obligations (BIS Model 3)
Acts as a central counterparty for all securities lending transactions initiated through the Securities Depository
Provides detailed reporting to Clearing Participants relating to their transactions in the NZX Clearing System

The Securities Depository (NZD):

Provides a settlement facility for all trades cleared via the Clearing House
Holds securities in the legal name of New Zealand Depository Nominee Limited (Nominee)
Facilitates Real-Time Gross Settlement (RTGS) functionality (BIS Model 1) of OTC trades
Provides Legal Title Transfer via direct registry connectivity with share registries LINK Market Services and Computershare, facilitating real time securities lodge and uplift
Provides a real time securities lodge and uplift process with NZClear
Facilitates online shunting via Computershare
Allows for cash transfers between Participants
Offers an optional Securities Lending facility
Corporate actions notification and processing
Provides report facilities detailing account balances, corporate actions, and settlement transactions to its Participants

Technology/Systems

NZX Clearing operates the BaNCS Market Infrastructure platform (“BaNCS") provided by Tata Consultancy Services. BaNCS interfaces with several NZX systems and Participant connectivity is available through 15022 messaging over TCP/IP or the SWIFT network or via a web-based user interface.

The system also operates a direct connection to NZClear via the SWIFT network to ensure Participants can seamlessly transfer securities between the NZX Clearing Depository and the NZClear system operated by RBNZ.

Additional Information

Additional Information about our services, can be found on the publications page