NZX Adviser cheat sheet

Financial Markets Conduct Act 2013 (FMC Act) is the primary statute governing offers of financial products, market services, and conduct obligations in New Zealand.

Financial Markets Authority (FMA) is the conduct regulator; it licenses market services (e.g., advisers, fund managers, derivatives issuers) and enforces the FMC Act.

NZX Limited operates the licensed market and its rulebook; NZX Regulation enforces market rules, while the FMA oversees NZX as a licensed market operator.

Under the FMC Act, a 'financial advice provider' (FAP) must hold or operate under a licence and ensure advisers meet competence, conduct, and disclosure duties.

The Code of Professional Conduct for Financial Advice Services (Code) sets standards: client care, competence, and ethical behaviour; breaches can lead to FMA enforcement.

Disclosure requirements: a Financial Advice Provider Disclosure Statement must be provided to clients, covering fees, conflicts, and complaint procedures.

Market manipulation and insider trading are prohibited under the FMC Act; penalties include imprisonment and significant fines.

Licensed market participants must comply with NZX Rules, including continuous disclosure for listed issuers and client money/client property rules for intermediaries.

Know Your Customer (KYC) and anti-money laundering (AML) obligations arise under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009; verify identity and beneficial ownership.

Suitability assessment requires gathering client information: financial situation, goals, risk tolerance, investment experience, and time horizon.

Financial advice must be suitable for the client; if advice is not suitable, the adviser must not provide it or must adjust recommendations.

Disclosure of conflicts of interest is mandatory; advisers must explain any commissions, fees, or other benefits that could influence advice.

Record-keeping: retain client records and advice documentation for at least 7 years (as per FMC Act and AML requirements).

Client agreements should clearly state the scope of advice, fees, and the adviser's obligations.

Vulnerable clients require extra care; the Code emphasises understanding client circumstances and adapting communication.

Ongoing suitability: advice must be reviewed when client circumstances change or at agreed intervals.

NZX Main Board and NZX Debt Market are licensed markets; trading occurs via NZX participants (brokers) on the NZX trading system.

Settlement cycle for NZX equities is T+2 (trade date plus two business days), matching international standards.

Continuous disclosure: listed issuers must immediately disclose material information under NZX Rules and FMC Act.

Market phases: pre-open, opening, continuous trading, closing, and after-hours; orders are matched by price-time priority.

Order types: limit, market, stop, and pegged orders; limit orders specify maximum buy or minimum sell price.

NZX indices include NZX 50 and NZX 20; they are market-cap weighted and reviewed quarterly.

Corporate actions (dividends, splits, rights issues) affect share price and holdings; adjustments occur on ex-date.

Short selling is permitted under the FMC Act with disclosure and settlement rules; naked short selling is prohibited.

Bond price and yield have an inverse relationship; when yields rise, bond prices fall.

Duration measures a bond's price sensitivity to interest rate changes; modified duration approximates percentage price change for a 1% yield change.

Credit risk: assessed by credit rating agencies (e.g., S&P, Moody's); NZX Debt Market lists corporate and government bonds.

Yield to maturity (YTM) is the total return anticipated if the bond is held to maturity, assuming reinvestment of coupons at YTM.

Coupon rate is the fixed interest paid, usually semi-annually; zero-coupon bonds pay no coupons and are issued at a discount.

New Zealand government bonds (NZGBs) are issued by the New Zealand Debt Management Office; they are considered low credit risk.

Interest rate risk is higher for longer-duration bonds; reinvestment risk is higher for shorter-duration or callable bonds.

Fixed income settlement on NZX Debt Market is T+2; accrued interest is calculated from last coupon date to settlement date.

Managed investment schemes (MIS) are regulated under the FMC Act; managers must be licensed and offer documents must comply with disclosure requirements.

ETFs are traded on NZX like shares; they track an index or basket and have management fees (expense ratio) and tracking error.

Portfolio diversification reduces unsystematic risk; asset allocation across asset classes is a primary determinant of long-term returns.

Modern Portfolio Theory (MPT) uses expected returns, variances, and correlations to construct the efficient frontier.

Rebalancing maintains target asset weights; can be calendar-based or threshold-based.

Active vs passive management: active seeks alpha, passive aims to match benchmark; fees and tax impact net returns.

Fund fees include management fee, administration fee, and performance fee; disclose total expense ratio (TER) to clients.

Liquidity risk: ETFs may trade at premiums/discounts to NAV; managed funds may have redemption notice periods.

Derivatives are contracts whose value derives from an underlying asset; common types: forwards, futures, options, swaps.

Futures are exchange-traded and standardised; forwards are OTC and customisable, carrying counterparty risk.

Options give the buyer a right (not obligation) to buy (call) or sell (put) at a strike price; the seller receives a premium.

Margin: initial margin is collateral posted at trade initiation; variation margin is daily settlement of gains/losses.

Hedging with derivatives can offset price, interest rate, or currency risk; speculation increases leverage and risk.

Derivatives issuers in NZ must be licensed under the FMC Act; disclosure documents must include risks and fees.

Greeks measure option sensitivities: delta (underlying price), gamma (delta), vega (volatility), theta (time decay).

Counterparty risk is the risk that the other party defaults; central clearing reduces systemic risk.

New Zealand has no comprehensive capital gains tax; however, gains from certain investments (e.g., shares acquired for resale) may be taxable.

Dividends from NZ companies may carry imputation credits; resident withholding tax (RWT) applies to interest and dividends.

KiwiSaver is a voluntary retirement savings scheme; employer contributions and member contributions are subsidised by the government.

Tax on managed funds: under the FMC Act, funds must calculate taxable income and attribute it to investors; PIE (Portfolio Investment Entity) rules apply.

Foreign investment fund (FIF) rules may apply to offshore investments; fair dividend rate (FDR) or comparative value (CV) methods calculate taxable income.

Retirement planning considers NZ Superannuation eligibility (age 65) and withdrawal rates; sequence risk affects drawdown strategies.

Tax rates: progressive for individuals; companies taxed at 28%; trusts at 33% (as of 2024).

GST applies to fees for financial advice services; however, some financial products are exempt.

The Code of Professional Conduct requires advisers to act with integrity, competence, and client care.

Ethical duties include placing client interests first, avoiding conflicts, and maintaining confidentiality.

Competence: advisers must attain and maintain knowledge and skills; continuing professional development (CPD) is required.

Client care: understand client needs, provide clear communication, and handle complaints fairly and promptly.

Conflicts of interest must be disclosed and managed; inducements that may conflict with client interests are restricted.

Professional standards include honesty, fairness, and transparency; misconduct can lead to disciplinary action by the FMA or professional bodies.

Ethical decision-making frameworks: consider stakeholders, legal requirements, and long-term consequences.

Record-keeping and audit trails demonstrate compliance and ethical conduct.