28 June 2022

FMA publishes NZX obligations annual review 2022

Media Release
MR No. 2022 – 18
28 June 2022

NZX achieved compliance with its licensed market operator obligations over the last year and has successfully implemented its action plan, significantly improving the stock exchange’s technology capabilities.

These are among the key findings of the Financial Markets Authority’s (FMA) - Te Mana Tātai Hokohoko annual NZX Market Operator Obligations Review, which reports on how well NZX is meeting the requirements for its market operator licence. The most recent report covers the period 1 January to 31 December 2021.

Following the FMA’s January 2021 targeted review into the stock exchange’s technology capabilities, the regulator closely monitored NZX’s progress. NZX subsequently made considerable improvements to its technological maturity, system sustainability, resiliency, and risk capability, this year’s report said. In March 2022, the FMA verified NZX had fully implemented the agreed actions and developed an ongoing enhancement and maintenance plan to address previous concerns.

Other highlights from the 2021 obligations review included:

  • NZX made a notable investment in its people, processes and systems;
  • an uplift in capability with recruitment of experienced personnel and design of new key roles;
  • market participant feedback indicated improved engagement with the industry through dedicated relationship management arrangements, the introduction of the Technology Working Group, and more open dialogue;
  • a downward trend in market-impacting incidents; and
  • NZ RegCo (NZX’s frontline regulator) operated effectively during its first full year, continuously enhancing its frameworks and arrangements to support its work, and demonstrating an appropriate level of independence from NZX.

Paul Gregory, FMA Acting Director of Capital Markets, said: “NZX has thoroughly engaged with the FMA reviews, made meaningful investments in systems and resources and seen an uplift in its performance against the obligations in the FMA’s annual review. This shows the benefit of serious engagement with FMA oversight and supervision.

“We note technology resourcing and risk management have been strengthened, with conflicts management arrangements maturing and performing well during the year. These are areas that we have focused on in our previous reviews and NZX has committed to ensuring it continues this journey of constant improvement. It is reassuring to see NZX make progress across several areas in a challenging, pandemic-dominated environment.”

Although NZX improved the overall performance and reliability of its systems in the year, there was one major incident on 5 August that led to a market halt after multiple participants were disconnected. This was caused by an NZX operator logging into an incorrect environment to test a solution for an issue raised by a participant. NZX acknowledged further enhancements were needed to its controls and provided a plan to the FMA containing 13 actions for improvement. Given the broader work on technology upgrades, the FMA considered the plan relating to this incident would sufficiently address the core issue.

“We were encouraged to see NZX promptly acknowledge the need for further enhancements to its controls following the August 2021 outage,” Mr Gregory said.

The FMA made four recommendations to NZX and NZ RegCo for further enhancements. These related to risk management, technology, preparing for significant market events, and timeliness of referrals to the NZ Markets Disciplinary Tribunal.