Any prospective replacement system for the Reserve Bank of New Zealand (RBNZ) financial instrument back-office clearing service, NZClear, would have to be domiciled locally, sale documents show.
According to the RBNZ expressions of interest form, the dual financial regulators – the central bank and the Financial Markets Authority (FMA) – would require “adequate regulatory influence over the acquirer’s system”.
“To achieve this outcome, the system in its entirety must be located and operated in New Zealand,” the RBNZ document says. “This requirement does not, however, preclude offshore ownership.”
According to an industry source, that requirement may turn off some offshore providers, giving the NZX-owned, New Zealand Clearing and Depositary Corporation (NZDC) – NZClear’s sole competitor – a potential advantage.
In its latest annual report, the NZDC said during this year it would “consider, and propose to RBNZ, options for provision of these services using the [NZX clearing] infrastructure”.
Over the 2014 financial year, NZDC reported a net profit of more than $2.7 million on revenue of almost $5.3 million. In the 12 months to end of June 2014, the RBNZ-owned NZClear recorded a net profit of $2.4 million on gross income of just under $6 million.
New Zealand equity and debt clearing prices are high by global standards, the source said.
“A strategic acquirer may drive significant further synergies with its existing systems and operations,” the RBNZ sales document says.
Under its proposed sale of NZClear announced last month, the RBNZ would offload its clearing business – which services 122 financial organisations – but not the underlying technology, which will be switched off post sale.
“The Bank’s intention is to relinquish its operational responsibilities for all SSD [securities settlement and depositary] services (including equity and fixed income settlements), except those required for the Bank’s own operations, to a suitable alternative provider,” the RBNZ proposal says.
“The Bank’s preferred approach is to fully exit the NZClear business. However, it is possible that the Bank may only partially reduce its role if its requirements cannot be met. For example, it may retain fixed interest settlement services, while an alternative provider takes over responsibility for equity settlement services.”
Any prospective buyer will have to meet the RBNZ requirment to “receive a price that represents fair value for the Bank’s exit from its SSD business”.
As at June 12, the RBNZ had fielded 11 queries in relation to the NZClear sale. Interested parties have until June 29 to lodge an expression of interest.