The government has recently released an exposure draft of the Financial Markets Conduct Bill (FMCB). Among other matters, the FMCB proposes to replace the Securities Markets Act "futures contracts" authorisation regime. Instead, issuers of "derivatives" would be required to obtain a licence and make point-of-sale disclosures.

Emissions unit trades involving actual delivery of emissions units are outside the existing futures contracts regime, taking advantage of an exclusion for physically settled (as opposed to cash settled) trades. However the proposed FMCB regime does not contain a directly comparable exclusion for physically settled trades. Instead, it only excludes fixed price sale and purchase agreements, and agreements for the physical delivery of "tangible" property. Physically settled trades that are neither tangible nor for a fixed price are proposed to be subject to the derivatives licensing and disclosure regime in the FMCB. On the face of it, this would include at least some emissions unit trades (for example, where the purchase price is set by reference to the market price).

This proposal may also require emissions unit brokers and advisers to obtain a licence under the Financial Advisers Act 2008.

The government intends to introduce the FMCB into the House before the general election. The public will have the opportunity to make submissions on the FMCB as part of the Select Committee process. For further information, see the Ministry of Economic Development's website