PURPOSE
This Legal & Regulatory Framework describes the legal and regulatory principles underlying the proposed International Digital Securities Exchange (“IDSX”). It explains the proposed regulatory basis of IDSX; the relationship between IDSX and New Zealand financial markets law; the legal status of the IDSX Market Rules; the regulatory treatment of Issuers, Participants, investors and Digital Securities; the relationship between IDSX Rules and the laws of other jurisdictions; and the regulatory principles guiding the design and operation of the proposed market. This document does not constitute legal advice and does not represent that IDSX has received regulatory approval, a licence, authorisation or endorsement.
PROPOSED REGULATORY BASIS
IDSX is being developed as a proposed financial product market under New Zealand’s financial markets regulatory framework. The principal legislation relevant to the proposed market includes the Financial Markets Conduct Act 2013 (“FMC Act”) and associated regulations and instruments. A person operating a financial product market in New Zealand is generally required under the FMC Act to hold an appropriate financial product market licence unless an exemption applies. IDSX is being designed on the basis that the proposed market operator will seek the regulatory status required under Applicable Law before commencing regulated market operations.
CURRENT REGULATORY STATUS
IDSX is currently a proposed market and has not commenced operation as a licensed financial product market. No statement in IDSX website, Market Rules, technical documentation or other material represents that IDSX currently holds a financial product market licence; has been approved or authorised by the Financial Markets Authority (“FMA”); any proposed Rule has received regulatory approval; any Security has been approved for admission; any Issuer has been approved for listing; or any proposed market structure has received final regulatory acceptance. The framework remains subject to legal, regulatory, technical and operational development.
NEW ZEALAND REGULATORY FRAMEWORK
The proposed IDSX market is intended to operate within New Zealand’s financial markets regulatory framework. Relevant components may include the FMC Act and its regulations and instruments; the Financial Service Providers (Registration and Dispute Resolution) Act 2008; the Financial Service Providers Register (“FSPR”); applicable AML/CFT legislation; company law; privacy, electronic transactions and data protection requirements; market licence conditions; regulatory directions, exemptions and notices; and other legislation or regulatory requirements applicable to relevant activities.
FINANCIAL PRODUCT MARKET LICENSING
The proposed IDSX market is being developed having regard to the licensing requirements applicable to financial product markets under the FMC Act. Before regulated market operations commence, the proposed Market Operator must hold any licence or exemption required by Applicable Law. The licensing process may consider the nature and scope of the proposed market; financial products admitted; proposed Participants and Market Rules; internal policies and procedures; governance; market supervision; trading systems; clearing and Settlement; technology; operational resilience; financial resources; and the Market Operator’s ability to satisfy statutory obligations.
MARKET OPERATOR
The IDSX market is intended to be operated by a body corporate satisfying the requirements applicable to a licensed financial product market operator. The final identity, corporate structure and regulatory status of the Market Operator will be established before regulated market operations commence. Where required by Applicable Law, the Market Operator will be registered on the FSPR. References to the “Market Operator” in the IDSX Market Rules refer to the entity legally responsible for operating IDSX once applicable regulatory requirements have been satisfied.
GENERAL OBLIGATIONS OF THE MARKET OPERATOR
The IDSX framework is designed having regard to obligations applicable to licensed market operators under New Zealand law, including the principle that a licensed market should operate fairly, orderly and transparently. Accordingly, the framework is intended to support fair and orderly trading; transparent operation; appropriate supervision; effective identification and management of conflicts; governance and accountability; adequate technology and operational controls; effective Rules and compliance arrangements; market surveillance; enforcement; and adequate clearing and Settlement arrangements.
FINANCIAL SERVICES PROVIDER REGISTRATION
Where required under Applicable Law, the Market Operator and other relevant financial service providers must obtain and maintain FSPR registration. FSPR registration is separate from a financial product market licence, any other required licence, IDSX Participant approval, and approval of a Security or Issuer. FSPR registration must not be represented as regulatory endorsement of IDSX or any Participant.
ROLE OF THE FINANCIAL MARKETS AUTHORITY
The FMA is the principal conduct regulator relevant to the proposed IDSX market under New Zealand’s financial markets framework. The FMA has statutory functions and powers concerning financial markets, market conduct, licensed market operators and other regulated financial services. IDSX intends to engage with the FMA while developing its proposed regulatory architecture. Nothing in this document implies FMA approval or endorsement of the proposed framework.
MARKET RULES
The IDSX Market Rules are intended to establish binding requirements for admission of Issuers and Securities; continuing Issuer obligations; participation; trading; clearing and Settlement; market conduct and surveillance; disclosure; Digital Securities; Wallet and transfer controls; investor eligibility; cross-border market access; compliance; discipline; and enforcement. The Rules must operate consistently with Applicable Law and conditions applying to the Market Operator.
REGULATORY STATUS OF MARKET RULES
IDSX Market Rules do not override Applicable Law. Applicable Law or a binding regulatory requirement prevails to the extent of any conflict. If IDSX becomes a licensed financial product market, its Rules may also be subject to statutory requirements for market rules, regulatory approval, amendment, review and enforcement. IDSX may amend proposed Rules during regulatory development.
ISSUERS
Admission does not remove or replace an Issuer’s obligations under Applicable Law. Each Issuer remains responsible for its governing corporate law; securities issuance; shareholder approvals; financial reporting and disclosure; governance; foreign ownership restrictions; tax; regulatory approvals; and other obligations applicable in its jurisdiction. Admission is a market decision and is not governmental approval of an Issuer.
CROSS-BORDER ISSUERS
IDSX is intended to support qualifying Issuers from multiple jurisdictions. A foreign Issuer may be admitted only where IDSX is satisfied that its legal and regulatory structure and Securities are compatible with the IDSX framework. Relevant matters include legal existence and capacity; enforceability of shareholder rights; issuance law; registers and ownership recognition; foreign ownership and cross-border offering restrictions; regulatory approvals; insolvency and enforcement; accounting and auditing; and compatibility of Digital Securities arrangements with home law. Further requirements are set out in the Jurisdiction Admission Framework.
APPROVED JURISDICTIONS
IDSX may maintain an Approved Jurisdictions List identifying jurisdictions from which Issuers may, in principle, apply. Inclusion allows an Issuer to enter the admission process but does not approve an individual Issuer or offering, permit investors in every jurisdiction to acquire the Security, or represent approval by authorities in that jurisdiction.
INVESTOR JURISDICTION
The Issuer’s jurisdiction and an Investor’s jurisdiction are separate regulatory considerations. Admission from an Approved Jurisdiction does not automatically permit offers, sales or transfers to Investors everywhere. Access may be restricted according to residence, nationality where legally relevant, regulatory status, investor classification, offering and financial promotion restrictions, sanctions, AML/CFT requirements, Wallet eligibility and other legal requirements.
ROLE OF BROKERS
IDSX is intended to operate through approved Brokers rather than unrestricted direct retail access. Subject to Broker Rules and Applicable Law, Brokers may be responsible for onboarding, identity verification, KYC and AML/CFT controls, investor classification and eligibility, suitability or appropriateness where applicable, order submission, client communications, client assets and transaction records. IDSX approval does not replace a licence or authorisation required by law.
SPONSORS
Sponsors may assist Listing Applicants with preparing, reviewing and submitting applications and may conduct due diligence and provide confirmations under the Sponsor Rules. Sponsor involvement does not guarantee admission, transfer Issuer disclosure responsibility, constitute regulatory approval or remove the need for independent professional advice where required.
MARKET MAKERS
Market Makers may provide liquidity through quotations under the Market Maker Rules. They remain responsible for Applicable Law, IDSX Rules, market conduct and conflicts requirements, and any licence or authorisation for their activity. Market making does not guarantee continuous liquidity or a particular price.
UNDERWRITERS
Underwriters may participate in primary issuance, distribution or placement activities. Such activities must comply with Applicable Law in relevant jurisdictions. IDSX approval or acceptance does not replace licensing or securities distribution requirements applicable to an Underwriter.
DIGITAL SECURITIES
IDSX proposes that certain Securities may be represented using DLT or blockchain technology. Technology does not alter the principle that a Security’s legal nature is determined by Applicable Law and its legally attached rights. Digital representation must not be used to avoid requirements applicable to the underlying financial product.
DIGITAL REPRESENTATION AND LEGAL OWNERSHIP
IDSX must be satisfied that an enforceable relationship exists between the underlying Security; Digital Security; legally recognised shareholder or securities register; Holder; beneficial owner where applicable; and relevant Wallet or digital record. Control of a Digital Security or Wallet does not automatically establish legal ownership unless the applicable legal structure provides for that result.
SHAREHOLDER REGISTER
Where Applicable Law requires a legally recognised register, the Digital Securities architecture must comply. IDSX may require the DLT record to form part of the register where permitted; reconciliation with an external legal register; a transfer agent or registry provider; or another legally effective structure. Technology must support, not create uncertainty about, enforceable shareholder rights.
CUSTODY
IDSX intends, where reasonably practicable, to avoid unnecessary custody of investor money or Securities by the Market Operator. Custody classification depends on the actual structure and Applicable Law. A Broker, custodian or other Participant providing custody or client asset services is responsible for required licences, registrations or authorisations. Self-custody, Wallets and DLT do not by themselves eliminate custody considerations.
CLEARING AND SETTLEMENT
IDSX must maintain clearing and Settlement arrangements appropriate to its market structure and consistent with Applicable Law and regulatory requirements. Arrangements may include Broker-based Settlement, independent providers, DLT Settlement, delivery-versus-payment, approved Settlement Assets or another approved lawful structure. The Clearing and Settlement Rules govern details.
SETTLEMENT ASSETS
Using a digital asset, stablecoin, tokenised financial asset or other digital instrument as a Settlement Asset does not alter its regulatory classification. IDSX may permit an asset only where compatible with Applicable Law, settlement certainty, operational resilience, counterparty controls, investor protection and market integrity.
AML/CFT
IDSX and relevant Participants must comply with applicable AML/CFT obligations. Responsibilities depend on each person’s legal role and activities. IDSX may impose market-level controls for identity and beneficial ownership verification, sanctions screening, transaction and Wallet monitoring, suspicious activity, jurisdiction restrictions and recordkeeping.
MARKET CONDUCT
IDSX intends to maintain Rules and surveillance to identify, prevent and respond to conduct inconsistent with fair and orderly markets, including manipulation, false or misleading trading, wash trading, matched orders, artificial pricing, misuse of confidential or inside information, deceptive conduct and other prohibited practices. Statutory market conduct obligations remain independently enforceable.
FAIR DEALING
Persons participating in IDSX-related activities remain subject to legal prohibitions on misleading or deceptive conduct, false representations, unsubstantiated representations and other prohibited conduct. IDSX may impose additional requirements for fair and accurate communications about Issuers, Securities and market activity.
DISCLOSURE
Issuers must comply with Applicable Law, IDSX Listing and Disclosure Rules, Continuing Listing Obligations and specific conditions. Admission does not replace disclosure obligations imposed by law.
REGULATED OFFERS
Whether an offer is regulated, exempt, wholesale or another form must be determined under Applicable Law. IDSX listing does not determine an offer’s legal classification. Issuers and advisers remain responsible for identifying transaction requirements.
TECHNOLOGY NEUTRALITY
Regulatory obligations should not depend solely on implementation technology. Blockchain, DLT, smart contracts or tokenisation may change technical implementation but do not themselves remove requirements for issuance, ownership, transfer, disclosure, custody, Settlement, market conduct or investor protection.
SMART CONTRACTS
Smart contracts may automate permitted Wallet whitelisting, eligibility, transfer restrictions, lock-ups, corporate actions, Settlement instructions and other controls. A smart contract does not override Applicable Law, the legal terms of a Security or IDSX Rules.
FOREIGN LAW
IDSX Rules may apply alongside laws of overseas jurisdictions. A cross-border transaction may engage New Zealand law, the laws governing the Issuer, Investor, Broker or other Participant, the offer or distribution, and custody or Settlement. IDSX may require legal opinions or other evidence.
NO PASSPORTING OR AUTOMATIC FOREIGN AUTHORISATION
A New Zealand licence or authorisation would not by itself authorise IDSX to conduct regulated activities elsewhere. Admission of a foreign Issuer does not imply IDSX recognition or authorisation by the Issuer’s home regulator. IDSX may restrict services or access where foreign law requires.
REGULATORY COOPERATION
IDSX may cooperate with Regulatory Authorities, law enforcement, market operators, exchanges and competent authorities where required or permitted, including by responding to lawful requests, reporting, assisting investigations, sharing surveillance information, supporting enforcement and addressing cross-border matters.
INFORMATION SHARING
IDSX may require Issuers and Participants to provide information necessary for supervision, regulatory reporting, investigations, enforcement, risk management, AML/CFT, sanctions compliance or Applicable Law. Information will be handled in accordance with confidentiality, privacy and data protection requirements.
REGULATORY REPORTING
The Market Operator may need to report to the FMA or other Regulatory Authorities. Issuers and Participants must provide information reasonably required for those obligations.
CONFLICTS OF INTEREST
IDSX and Participants must maintain arrangements to identify and manage material conflicts. The Market Operator must discharge regulatory responsibilities and must not allow commercial interests improperly to compromise market integrity, regulatory functions, admission decisions, surveillance, discipline or investor protection.
GOVERNANCE
IDSX intends to maintain governance appropriate to the proposed market’s nature and scale. Arrangements may include Board oversight, independent decision-making, conflicts management, compliance oversight, risk management, technology governance, supervision, escalation and regulatory accountability.
OUTSOURCING
IDSX may use third parties for technology, infrastructure, data, custody, registry, Settlement, compliance or other functions. Outsourcing does not remove the Market Operator’s legal responsibility. IDSX may set due diligence, contractual, resilience, cybersecurity, data access, regulatory access, continuity and termination requirements.
REGULATORY CHANGE
The framework may change to reflect legislation, regulatory guidance, licence conditions, international standards, technology, market structure or operating experience. Issuers and Participants may need to adapt their systems, procedures or activities.
LEGAL AND PROFESSIONAL ADVICE
IDSX may require independent legal, accounting, tax, audit, technical or other advice. IDSX review of advice does not transfer responsibility for it to IDSX.
RELATIONSHIP WITH OTHER IDSX RULES
This Framework must be read with the General Rules; Definitions & Interpretation; Rulebook Structure & Hierarchy; Listing Rules; Jurisdiction Admission Framework; Approved Jurisdictions List; Digital Securities Rules; Clearing and Settlement Rules; Wallet and On-chain Transfer Rules; Participant Rules; and all other applicable IDSX Market Rules.
PRECEDENCE OF APPLICABLE LAW
Nothing in the IDSX Market Rules excludes, limits or overrides Applicable Law. If compliance with an IDSX Rule would cause a contravention, the person must not knowingly commit it, notify IDSX where appropriate and legally permitted, and cooperate in determining a lawful course.
NO REGULATORY ENDORSEMENT
References to the FMC Act, FMA, FSPR, a regulatory framework, licence category or governmental or regulatory body do not imply approval, sponsorship, recognition or endorsement of IDSX by that authority.
STATUS OF THIS DOCUMENT
This document forms part of the proposed IDSX market framework and has been prepared for regulatory discussion, legal review and market design purposes. IDSX is currently a proposed financial product market and has not commenced operation as a licensed financial product market. The proposed regulatory architecture, Market Rules, systems, Clearing and Settlement arrangements, Digital Securities framework and operating model remain subject to regulatory, legal and operational review. Nothing in this document represents that the Financial Markets Authority, the Minister of Commerce and Consumer Affairs or any other Regulatory Authority has approved, authorised or endorsed IDSX or any part of the proposed framework.