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Financial market infrastructures

Financial market infrastructures (FMIs) provide channels through which payments, securities, derivatives or other financial transactions are cleared, settled or recorded.

About FMIs

FMIs are systems or arrangements that provide trading, clearing, settlement and reporting services in relation to payments, securities, derivatives and other financial transactions. They play an important role in our financial ecosystem as they maintain and promote:

  • investor confidence
  • the soundness and efficiency of securities markets
  • the soundness and efficiency of the financial system as a whole.

In New Zealand, there are four main types of FMIs:

  • payment systems — a set of instruments, procedures and rules for the transfer of funds between or among participants
  • securities settlement systems — enable securities to be transferred and settled by book entry according to a set of predetermined multilateral rules
  • central securities depositories — provide securities accounts, central safekeeping services and asset services
  • central counterparties — interpose themselves between counterparties to contracts traded in 1 or more markets.

FMIs includes a fifth type of infrastructure called trade repositories, however there are no trade repositories currently in New Zealand. A trade repository is an entity that maintains a centralised electronic record (database) of transaction data.

New Zealand's main payment systems are displayed below in figure 1 and described in table 1.

How we support FMIs

Our Supervision department oversees New Zealand's FMIs and our Payments and Services department operate 2 major systems: the Exchange Settlement Account System (ESAS) and NZClear.

Read more about our oversight of FMIs
Read more about ESAS
Read more about NZClear

FMIs' important role in the economy

Well-managed and well-operated FMIs are essential to a sound and efficient financial system, and the day-to-day operation of financial markets and the economy.

In particular, FMIs provide a significant portion of the underlying infrastructure that enables non-cash payments and the clearing and settlement of financial market transactions. FMIs can reduce transaction costs for participants by supporting the management of counterparty default risk and fostering transparency.

Given the key role that FMIs play in the financial system, the disruption or failure of an important FMI has the potential to cause significant adverse impacts on financial markets, businesses and consumers. If not managed properly, FMIs can pose a major risk to the financial system because they are interconnected with many financial market entities.

A stable financial system therefore depends on the careful management and mitigation of  key risks for FMIs, such as operational and liquidity risk.

FMIs include both operators and participants. Most have rules and procedures for all participants and technical infrastructure, and use specialised risk-management frameworks to prevent things going wrong.

Figure 1: The New Zealand financial market infrastructure landscape

nz financial market infrastructure landscape diagram

Table 1: New Zealand financial market infrastructures

System Description Owner/operator
High value
Exchange Settlement Account Systems (ESAS)* Provides real-time gross settlement of interbank transactions across the exchange settlement accounts held with us. Reserve Bank of New Zealand
High Value Clearing System (HVCS) A set of rules for customer-to-customer real-time payments and for high-value payments between participating financial institutions. Settlement occurs in ESAS.
Payments NZ Limited, a company owned by 8 registered banks
CLS* Provides payment versus payment settlement of foreign exchange transactions.
CLS Bank International
     
Retail payment systems
(systems that primarily process payments made by individuals and small businesses)
Settlement Before Interchange (SBI) Arrangements for the progressive exchange during the day of retail payment instructions (direct debits and credits, automatic payments, ATM settlement transactions, internet banking and phone banking). Payments are exchanged using SWIFT and settlement of net interbank positions occurs in ESAS.
Payments NZ Limited
Worldline New Zealand Limited Provides a network for the interchange of point-of-sale card transactions.
Worldline SA
EFTPOS NZ Limited Provides a network for the interchange of point-of-sale card transactions.
EFTPOS NZ Limited, a company owned by VeriFone Systems
Securities Settlement
NZClear* Allows members to settle fixed interest and equity transactions. Interbank payments occur directly in ESAS.
Reserve Bank of New Zealand
NZCDC Settlement System* Used to clear and settle trades on NZX markets. The system includes a central counterparty and securities depository.
New Zealand Clearing and Depository Corporation Limited, a wholly owned subsidiary of NZX Limited
Central Counterparties
LCH Limited A multi-asset class, central counterparty for a number of major exchanges and markets. Used by New Zealand banks to clear trades in NZD-denominated interest rate swaps.
LCH Group Holdings Limited
ASXClear* (Futures) A central counterparty for clearing NZD interest rate futures and New Zealand energy futures traded on the ASX24 market.
ASX Limited
Critical Service Providers
SWIFT Provides secure global financial messaging services.
Society for Worldwide Financial Telecommunication, a cooperative owned by more than 11,000 financial institutions

* Denotes systems declared to be designated settlement systems under the Reserve Bank of New Zealand Act 1989.