NZDX Adviser key terms

New Zealand's registered market for listed bonds and other fixed-income securities, operated under NZX rules. It provides a secondary market where investors can buy and sell debt securities after issue.

A debt security in which the issuer borrows a fixed principal from investors and promises to pay interest (coupons) and repay the principal at maturity. Bondholders rank ahead of shareholders if the issuer fails.

The annual interest rate, expressed as a percentage of the bond's face value, that the issuer pays to bondholders. It may be fixed or floating and is usually paid semi-annually.

The total return an investor earns by holding a bond to maturity, assuming all coupons are reinvested at that same rate. It reflects the bond's price, coupon and remaining term.

The extra yield a bond offers over a comparable risk-free government bond, compensating investors for default and liquidity risk. Wider spreads indicate the market perceives greater credit risk.

A share in the ownership of a company that gives the holder a residual claim on profits and assets, usually with voting rights. Equity returns come from dividends and capital gains and are not guaranteed.

The primary equity market operated by NZX for larger listed companies that meet its listing and ongoing disclosure requirements. It is distinct from the NZX Debt Market and derivatives market.

A collective investment arrangement, such as a unit trust or KiwiSaver fund, where investor money is pooled and managed by a licensed manager under a governing document. Units are issued to investors in proportion to their contributions.

A financial contract whose value is derived from an underlying asset, rate or index, such as a futures contract, option or swap. Derivatives can be used to hedge risk or to speculate.

The use of borrowed money or derivative exposure to control a position larger than the capital committed. Leverage magnifies both gains and losses and can result in losses exceeding the original investment.

The core New Zealand statute governing offers of financial products, market conduct, disclosure, licensing and fair dealing. It replaced the Securities Act 1978 and related legislation and underpins most adviser obligations.

A business entity licensed under the FMCA to give regulated financial advice. A FAP must hold a market services licence, meet conduct obligations and ensure its advisers are competent and properly supervised.

An individual who gives regulated financial advice on behalf of a licensed financial advice provider. Advisers must operate within the scope of their engagement and comply with the code of professional conduct.

The conduct standards made under the FMCA for financial advice providers and advisers, covering ethical behaviour, client care, competence and disclosure. Breach can lead to disciplinary action and licence conditions.

The FMCA prohibitions on misleading or deceptive conduct, false or unsubstantiated representations, and uninvited offers of financial products. These duties apply broadly to anyone dealing in financial products, not just licensees.

A prescribed disclosure document that must be given to retail investors before a regulated financial product is offered. It summarises key features, risks, fees and how to complain in a standardised format.

An independent licensed entity appointed to supervise a managed investment scheme's manager and hold scheme assets. The supervisor monitors compliance with the governing document and acts in investors' interests.

New Zealand legislation requiring reporting entities, including financial advisers and brokers, to identify and verify customers, monitor transactions and report suspicious activity. It aims to prevent money laundering and terrorist financing.

The process of establishing a client relationship, including identity verification, gathering financial information, documenting objectives and agreeing the scope of advice. It creates the record on which later suitability assessments rely.

The process of collecting and recording a client's financial situation, goals, risk tolerance, time horizon and experience. Accurate KYC information is essential for recommending suitable products and services.

The requirement that advice and product recommendations match the client's objectives, financial situation, risk tolerance and needs. Advice that is unsuitable can breach conduct obligations and expose the adviser to liability.

A client's willingness and financial capacity to accept investment losses or volatility in pursuit of their goals. It combines psychological attitude with objective factors such as income, liabilities and time horizon.

The AML/CFT steps of identifying the customer, verifying their identity, understanding the nature of the relationship and, where relevant, identifying beneficial owners. Enhanced due diligence applies to higher-risk customers.

A report a reporting entity must submit to the Financial Intelligence Unit when it suspects transactions may involve money laundering or terrorist financing. Reporting in good faith is protected by law.

A firm admitted by NZX to trade directly on its markets and to clear and settle trades through the designated settlement system. Participants must meet capital, conduct and operational requirements.

The process by which a trade is completed through the delivery of the security and payment of the consideration. In New Zealand equities, settlement typically occurs on a T+2 basis.

The safekeeping and administration of client assets by a third party, including holding securities, processing corporate actions and maintaining records. Custodians are subject to licensing and conduct obligations.

The obligation to take reasonable steps to obtain the best possible result for clients when executing or placing orders, considering price, cost, speed and likelihood of execution. It does not guarantee the best price every time.

An instruction from a client to buy or sell a financial product, specifying the product, quantity and any price or timing conditions. Advisers must ensure orders reflect the client's instructions and authorisation.

The risk that the value of an investment will fall due to movements in market prices, interest rates, exchange rates or volatility. It cannot be eliminated but can be managed through diversification and hedging.

The risk that a borrower or counterparty will fail to meet its obligations, such as paying interest or repaying principal. It is a key consideration when assessing bonds and other debt products.

The risk that an investment cannot be sold quickly at a fair price, or that a firm cannot meet its cash obligations as they fall due. Illiquid products may require long holding periods or accept price discounts.

The risk that changes in interest rates will reduce the value of an investment, particularly fixed-rate bonds, whose prices fall when rates rise. Longer-duration securities are more sensitive to rate changes.

A statistical measure of how much an investment's returns fluctuate over time. Higher volatility implies a wider range of possible outcomes and generally greater risk for the investor.

A position or instrument used to offset the risk of an adverse price movement in another holding. Hedging can reduce exposure but typically involves costs and may limit potential gains.

The requirement to identify and disclose to clients any personal or business interest that could influence advice, such as commissions or ownership links. Disclosure must be timely, clear and specific.

A legal obligation to act in another party's best interests, prioritising their interests above your own. It typically arises where one party is entrusted with discretion over another's money or affairs.

The provision of clear, accurate and timely information to clients about advice, fees, conflicts, risks and the nature of the relationship. Effective disclosure allows clients to make informed decisions.