FMI Standard 14: Segregation and Portability

FMI STANDARD 14: SEGREGATION AND PORTABILITY FS14

Ref #20368275 v1.0 DOCUMENT VERSION HISTORY 1 March 2024 First issue date INTRODUCTION Application i. This standard applies to every operator of a designated FMI that was specified in its designation notice under section 29(2)(f) of the Financial Market Infrastructures Act 2021 (the Act) as falling within the central counterparty class of designated FMI. Legal powers ii. Under section 8 of the Act the regulator is defined as the RBNZ and the FMA acting jointly. iii. Section 12 of the Act provides the regulator's functions. These include regulating designated FMIs, dealing with designated FMIs that are distressed, and other functions under the Act. iv. Subject to certain statutory prerequisites, section 31 of the Act empowers the regulator to make standards for designated FMIs. v. Section 34 sets out the matters that standards may deal with or otherwise relate to. Section 34(1)(e)(v) provides that a standard may deal with, or otherwise relate to, the management of custody and investment risk. Segregating and porting participant assets is one way of managing custody and investment risk. Interpretation vi. Words and phrases used in this standard have the same meaning as in the Act. vii. Segregation means the protection of customer collateral and contractual positions by holding or accounting for them separately from those of the direct participant. viii. Portability means the ability to transfer contractual positions, funds, or securities from one party to another party. ix. Internal systems means mechanisms within an FMI or operator to implement policies, procedures, or controls. Commencement x. This standard comes into force on 1 March 2024.

Ref #20368275 v1.0 REQUIREMENTS

1. An operator must have rules and procedures for the FMI that enable the segregation and portability of positions of a participant’s customers, and the collateral provided to the FMI with respect to those positions.
2. Further to the requirements in clause (1), an operator must: a) have segregation and portability arrangements for the FMI to effectively protect the positions of an FMI’s participant’s customers and related collateral from the default or insolvency of that participant; and b) if the FMI offers protection of customer positions and collateral against the concurrent default of the participant and a fellow customer, take steps to ensure that such protection is effective; and c) ensure that there is an account structure that enables the operator to readily identify positions of a participant’s customers and to segregate related collateral. The operator must maintain participant customer positions and collateral in individual customer accounts or in omnibus customer accounts; and d) structure the FMI’s portability arrangements in a way that ensures there is a high probability that the positions and collateral of a defaulting participant’s customers will be transferred to one or more other participants; and e) disclose publicly the FMI’s rules, policies, procedures, and internal systems relating to the segregation and portability of positions of participant’s customers and related collateral; and f) disclose whether participant customer collateral is protected on an individual or omnibus basis; and g) disclose any constraints, such as legal or operational constraints, that may impair its ability to segregate or port a participant’s customers’ positions and related collateral. (See Guidance for Standard 14: ‘Segregation and Portability’, in Guidance for the FMI Standards for more detail).