New Zealand
A regulated offer means an offer of financial products to one or more investors where at least one of those investors requires disclosure, usually a product disclosure statement.
Regulated offers
DIL – Derivatives Issuer License
Online foreign exchange trading is used by some people to try to make a quick profit by betting on the changing value of foreign currencies. But they are just as likely to lose money as make it.
The risk is even higher if one trades with borrowed money, as this increases any gains or losses you make.
The value of currencies changes constantly. Forex trading is the buying and selling of foreign currencies.
Forex trading
You can trade in Forex by:
Purchasing foreign money (that will need to be held in a foreign currency bank account) with the hope that the currency will increase in value against the NZ dollar, or
Buying and selling contracts linked to the exchange rates between two currencies from a licensed derivatives issuer. These contracts could be called things like forwards, swaps, options, contracts for difference (CFDs), and margin FX contracts.
DIL – Derivatives Issuer License
The only FSP registration that requires a DIL is for this category: “Trading financial products or foreign exchange on behalf of other persons”
Forex trading using contracts linked to the exchange rate between two currencies is classed as trading a ‘derivative’ financial product. A derivative product involves trading in the changing value of an underlying asset such as currencies, shares, bonds, commodities or interest rates. In New Zealand, individuals or businesses offering these contracts must hold a ‘derivatives issuer license’ from FMA.
- A DIL license application is distinctly different from applying for FSP Registration for the “Trading financial products or foreign exchange on behalf of other persons” category.
- Due to the nature of CFD products, FMA may consider it unusual that a company would trade these products without issuing them. Under FMC Act a derivatives issuer must be licensed to make a regulated offer of derivatives. A ‘regulated offer’ is an offer where disclosure must be made to at least one investor, for example, because an investor is a retail investor in New Zealand. Schedule 1 of the FMC Act sets out the exclusions to the disclosure requirements. ‘Derivative’ is broadly defined and includes margin contracts.
- If an applicant elects not to offer CFDs, a Derivative Issuer License may still be required, as clients will be trading on margin (i.e. entering margin contracts). And based in our experience, FMA will still seek confirmation of whether the company intends to offer CFDs and, if so, the details of how these products will be provided.