Overview of NZClear

 Last updated: December 2014

1 System structure

NZClear is a real time settlement system which members access from their premises.

Each member has a security account(s) on the system which records the securities "lodged with New Zealand Central Securities Depository Limited" (NZCSD), a custodian, fully owned by the RBNZ. NZCSD becomes the legal owner of the securities on the respective register and holds securities on behalf of the member, the beneficial owner. The inventory of securities held in the depository currently stands at around NZD 198 billion.

Each member also has a system cash account. This account is provided by a registered New Zealand bank. The bank providing a system cash account has real time access to set daylight limits (debit caps) on that account.

For a transaction to be settled, both parties must enter relevant details of the transaction and those transaction details must be "matched" by the system before further processing can continue.

All payments, whether for the settlement of securities transactions or just cash transfers, are irrevocable once they are accepted by the System. This is possible because transactions are not accepted by the System unless the paying member has sufficient credit provided by their banker within the System to allow the transaction to be completed. The irrevocable nature of the payment, together with the delivery versus payment (DVP) mechanism for security transactions, means that NZClear provides a quality securities settlement and cash payment facility of international standards.

Appendix I gives a pictorial description of the system structure and Appendix II describes and illustrates a typical trade on NZClear.

2 System functions

NZClear offers the following functionality:

Delivery versus Payment (DVP), Real Time Gross Settlement[1] for the following registered security types:

  • Registered Certificates of Deposit
  • Bonds and Treasury Bills
  • Registered Notes
  • Equities

Security transfer between members.

Cash Transfers - between members.

FX Confirmations - electronic matching/confirmation of FX trades.

  • For any currency pairs
  • Settlement of any NZD leg

Electronic Tender Facility

Host to Host Lite Interface - allows direct transfer of transactions from members' internal systems to NZClear.

FTP Transaction Status file – provides the member with a regular site update of the status of all external transactions. The file is transferred using FTP protocol. HTH Lite combined with the FTP transaction status file provides a near real time batched STP solution for members.

NZClear SWIFT Interface (NSI) – is a full application to application interface, allowing members to adopt an exception based processing approach. The NSI allows members to enter Cash Transactions, Fixed Interest and Equity Trades automatically into NZClear via SWIFT messages sent over the SWIFT Network, without a user connecting to an NZClear terminal.

3 NZClear Electronic Registries/NZX Interface

NZClear has electronic interfaces with both Computershare and Link which will allow entries of securities lodges to and securities uplifts from NZClear to electronically effect the necessary movement of securities in the relevant securities registry. It also has an electronic interface with NZX to allow NZX participants to electronically transfer securities via the NZClear Depository (NZCSD Ltd) and NZCDC Ltd (NZX Depository).This functionality enhances straight through processing reducing operational risk and processing costs. The interfaces became operational mid 2010.

Attached is the Securities Transfer (Approval of Austraclear Electronic Registries Interface System) Order 2010 (PDF 137KB). The Order gives approval to the new interfaces under section 7 of the Securities Transfer Act 2010.

4 New Security Issuance

NZClear has an on-line registry – FINEWISS. FINEWISS allows the Member to electronically authorise the creation of a new issue on the register and simultaneously lodge and confirm the new security to the Member's security account. Presently this service caters for Bank Issued paper and eligible Corporate Debt securities.

5 Ownership

NZClear is operated in New Zealand by the Reserve Bank of New Zealand. The rights and obligations of members to each other and the rights and obligations of the Reserve Bank of New Zealand as operator of the System are governed by a mutual contract entered into by all members. This contract is known as the NZClear Rules.

The System has been in operation in New Zealand since June 1990.

6 Membership structure

The Reserve Bank offers three types of membership:

Full Member - access to full system functionality

Associate Member - has limited access to system functionality

  • No branches allowed
  • Unable to trade directly with another Associate Member
  • Allowed no security sub accounts

Nominated Trust Member - access full system functionality

  • A Nominated Trust member operates as a branch of a full member. The set up on NZClear gives legal protection to the assets of the Nominated Trust Member (this membership is available only to entities established under the New Zealand Trustees Act 1956).

7 Fee structure

The fee structure is made up of three parts - A joining fee, an annual subscription and transaction fees. The level of joining fees and annual subscription depend on the extent of functions required and the means of access to the System. This usually requires some discussion to establish the needs of the member. Transaction fees are the same for each membership class.

8 Criteria for membership

The Reserve Bank will favourably consider an application for NZClear membership from any institution (domestic or foreign), which, in the opinion of the Reserve Bank, is of good standing and has the necessary resources to meet its obligations as a member.

All members will generally be required to either:

  1. have to hold a certificate of exemption from Resident Withholding Tax, or
  2. in the case of members who are not resident in New Zealand for tax purposes, only be permitted to hold in NZClear fixed interest securities issued by either the New Zealand Government or Reserve Bank of New Zealand (with the issuer paying the Approved Issuer Levy on non-resident withholding income).

9 Application for membership

Copies of the membership application pack and other background information on NZClear:

  • System Overview
  • Membership List
  • Fee Structure
  • NZClear Rules and Operating Guidelines

can be obtained from the NZClear HelpDesk.

We advise applicants to send in draft form a copy to us via fax or scanned and emailed prior to formally submitting your application.

If the applicant meets the membership criteria and has correctly completed the application forms, we can connect them within ten business days.

10 Transaction volumes

Daily transaction numbers vary between 1100 and 1500 and the average total value of daily transactions is around NZ$7.5 billion.

11 System resilience

Back-up and recovery arrangements are such that even in the most extreme disaster scenario, the maximum system outage would be one hour.

12 System summary

The system provides for a secure paperless settlement environment through the electronic transfer of funds and securities. Use of the system reduces members' exposure to both settlement and credit risks. The extent of system usage is highlighted by the statistics given below.

The NZClear System has:

124 members in New Zealand and Australia.
51 Full Members
42 Associate Members
31 Nominated Trust Members

Around NZD198 billion of securities held in the New Zealand Central Securities Depository[2].

Around 1,300 transactions per day which equates to around 7.5 billion dollars in daily transaction value.

13 Enquiries

These may be directed to:

Mike Wolyncewicz, Chief Financial Officer

Financial Services Group (0064 4) 471 3826

or

Nathan Lewer, Manager

Payment & Settlement Services

Financial Services Group (0064 4) 471 3961

NZClear (0064 4) 471 3918

Appendix I

NZClear Flows

Appendix II

A typical trade on NZClear

The following steps are typical of the process to settle a transaction on NZClear using the "autosettle" option when A sells a security to B.

  1. Trade agreed between Party A and Party B.
  2. Trade input - both parties input and authorise[3] the trade details
  3. System matches trade details.
  4. (a) If details don't match, members have to correct deal details.

(b) If deal details match, then on settlement date, or immediately if same day trade and if:

(i) The seller has beneficial ownership of the security within NZCSD.

(ii) The buyer has sufficient funds or unutilised limits in their NZClear bank account;

then

  1. NZClear sends a payment request to ESAS (Exchange Settlement Account system) for B's bank to pay the funds to A's bank ES account held at the RBNZ.
  2. The buyer's banker authorises the transfer of funds to the seller's banks.
  3. ESAS sends a payment confirmation message to NZClear to continue payment.
  4. NZClear irrevocably settles the transaction. The security and cash records of the system are updated simultaneously.

If all conditions are not met, the trade will stay pending settlement throughout the day, and settlement will be continually attempted by the system. If the trade is not settled by end of day it is removed from the system overnight.

If the seller holds the security outside NZCSD, then the security will have to be transferred from the seller's name and lodged into NZCSD's name to allow the trade to complete. Once the security is lodged into NZCSD's name, the seller will become the beneficial owner of the security once their security account is credited.

Alternatively, if the buyer wants to be the legal owner of the security, ie not as beneficial owner, then once the trade is settled they can uplift the security from NZCSD and transfer the ownership into their own name at the security register.

  1. ESAS is the software system through which funds are irrevocably transferred between registered banks that hold settlement accounts at the Reserve Bank.

[1] Settlement is in irrevocable bank funds.

[2] Fluctuates with share values.

[3] Each member sets the number of authorised electronic signatures required.